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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001-33853
TRIP.COM GROUP LIMITED
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
968 Jin Zhong Road
Shanghai 200335
People’s Republic of China
(Address of principal executive offices)
Jane Jie Sun, Chief Executive Officer
Telephone: +86 (21) 3406-4880
Facsimile: +86 (21) 5251-0000
968 Jin Zhong Road
Shanghai 200335
People’s Republic of China
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
American depositary shares,
each representing 0.125 ordinary shares, par value US$0.01 per
share
Trading
Symbol
TCOM
Name of each exchange
on which registered
Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
Ordinary shares, par value US$0.01 per share*
* Not for trading, but only in connection with the listing of American depositary shares on the Nasdaq Global Select Market.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual
report: 74,953,392 ordinary shares, par value US$0.01 per share, as of December 31, 2020.
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 every Interactive Data File required to be submitted 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 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 the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer ☐
Non-accelerated filer
Emerging growth company
☐
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected
not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of
the Exchange Act. ☐
†
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after
April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☐
Other ☐
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
Table of Contents
INTRODUCTION
PART I.
TABLE OF CONTENTS
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16H.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
CORPORATE GOVERNANCE
MINE SAFETY DISCLOSURE
PART III.
ITEM 17.
ITEM 18.
ITEM 19.
SIGNATURES
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
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In this annual report, unless otherwise indicated or unless the context otherwise requires:
INTRODUCTION
•
•
•
•
•
•
•
“ADSs” refers to American depositary shares, each of which represents 0.125 ordinary shares;
“China” or “PRC” refers to the People’s Republic of China and, solely for the purpose of this annual report, excludes Taiwan, Hong
Kong, and Macau, and “Greater China” refers to the People’s Republic of China, Taiwan, Hong Kong, and Macau;
“GMV” refers to gross merchandise volume, the total value of merchandise sold through our platform during a given period;
“Qunar” refers to Qunar Cayman Islands Limited, a Cayman Islands company, and unless the context requires otherwise, includes its
predecessor entities and consolidated subsidiaries and consolidated affiliated Chinese entities;
“Renminbi” or “RMB” refers to the legal currency of China; “U.S. dollars” or “US$” refers to the legal currency of the United
States; and “€” refers to the legal currency of Eurozone;
“shares” or “ordinary shares” refers to our ordinary shares, par value of US$0.01 per share; and
“we,” “us,” “our company,” or “Trip.com Group” refers to Trip.com Group Limited (formerly known as Ctrip.com International,
Ltd.), its predecessor entities and subsidiaries, and, in the context of describing our operations and consolidated financial
information, its consolidated affiliated Chinese entities, unless otherwise indicated herein. We consolidate the financial results of
Qunar starting from December 31, 2015. In calculating the number of hotels with which we have room supply relationships,
downloads of and transactions through our mobile channel, and other operational data, where applicable, as well as in describing our
marketing, branding, and intellectual properties, we have not taken into account the comparable operating data or other information
of Qunar.
Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2018, 2019 and 2020.
Our reporting currency is Renminbi because our business is primarily conducted in China and most of our revenue is denominated in Renminbi.
This annual report on Form 20-F contains translations from Renminbi to U.S. dollars solely for the convenience of the reader. Unless otherwise stated,
all translations from Renminbi to U.S. dollars were made at a rate of RMB6.5250 to US$1.00, which was the certified noon buying rate in effect as of
December 31, 2020, as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. The certified noon buying rate
in effect as of March 5, 2021 was RMB6.4960 to US$1.00. We make no representation that any Renminbi or U.S. dollar amounts referred to in this
annual report on Form 20-F could have been, or could be, converted to U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The
PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign
exchange.
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Table of Contents
PART I.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3.
KEY INFORMATION
A. Selected Financial Data
Selected Consolidated Financial Data
The following table presents the selected consolidated financial information for our business. You should read the following information in
conjunction with “Item 5. Operating and Financial Review and Prospects” below. The selected consolidated statements of income data for the years
ended December 31, 2018, 2019 and 2020 and the selected consolidated balance sheets data as of December 31, 2019 and 2020 have been derived from
our audited consolidated financial statements and should be read in conjunction with those statements, which are included in this annual report
beginning on page F-1. The selected consolidated statements of income/(loss) data for the years ended December 31, 2016 and 2017 and the selected
consolidated balance sheets data as of December 31, 2016, 2017 and 2018 have been derived from our audited consolidated financial statements for
these periods, which are not included in this annual report.
Our historical results do not necessarily indicate results expected for any future periods.
Selected Consolidated Statements of Income/(Loss) Data
Net revenues
Cost of revenues
Gross profit
Operating expenses
—Product development(2)
—Sales and marketing(2)
—General and administrative(2)
Total operating expenses
(Loss)/income from operations
Net interest (expense)/income and other (expense)/income(3)
(Loss)/income before income tax expense and equity in (loss)/income
of affiliates
Income tax expense
Equity in income/(loss) of affiliates
Net (loss)/income
For the Year Ended December 31,
2016(1)
RMB
2017(1)
RMB
2018(1)
RMB
2019
RMB
2020
RMB
US$
(in millions, except for share and per share data)
19,245
(4,730)
14,515
26,796
(4,678)
22,118
30,965
(6,324)
24,641
35,666
(7,372)
28,294
18,316
(4,031)
14,285
2,807
(618)
2,189
(7,687)
(5,861)
(2,519)
(16,067)
(1,552)
(8,259)
(8,294)
(2,622)
(19,175)
2,943
(9,620)
(9,596)
(2,820)
(22,036)
2,605
(10,670)
(9,295)
(3,289)
(23,254)
5,040
(7,667)
(4,405)
(3,636)
(15,708)
(1,423)
(1,175)
(675)
(557)
(2,407)
(218)
(192)
581
(684)
4,047
198
30
(1,744)
(482)
602
(1,624)
3,524
(1,285)
(65)
2,174
1,921
(793)
(32)
1,096
9,087
(1,742)
(347)
6,998
(1,225)
(355)
(1,689)
(3,269)
(188)
(54)
(259)
(501)
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Selected Consolidated Statements of Income/(Loss) Data
Net income/(loss) attributable to non-controlling interests
Accretion to redemption value of redeemable non-controlling
interests(6)
Net (loss)/income attributable to Trip.com Group Limited
Earnings/(losses) per ordinary share data:
(Losses)/earnings per ordinary share(4), basic
(Losses)/earnings per ordinary share(4), diluted
Weighted average ordinary shares outstanding, basic
Weighted average ordinary shares outstanding, diluted
Selected Consolidated Balance Sheets Data
Cash and cash equivalents
Restricted cash
Short-term investments
Current assets
Investments(3)
Total assets
Current liabilities
Long-term debt
Total liabilities
Redeemable non-controlling interests(6)
Share capital
Total Trip.com Group Limited shareholders’ equity
Non-controlling interests
Total shareholders’ equity
For the Year Ended December 31,
2016(1)
RMB
2017(1)
RMB
2018(1)
RMB
2019
RMB
2020
RMB
US$
(in millions, except for share and per share data)
206
(19)
16
57
62
10
—
(1,418)
—
2,155
—
1,112
(44)
7,011
(40)
(3,247)
(6)
(497)
(23.97)
(23.97)
(6.62)
(6.62)
59,166,582 66,300,808 68,403,426 70,983,996 75,111,026 75,111,026
59,166,582 71,775,893 70,924,623 80,244,014 75,111,026 75,111,026
(43.21)
(43.21)
32.51
30.75
98.78
92.02
16.25
15.67
2016(1)
2017(1)
As of December 31,
2019(5)
2018(1)
2020
RMB RMB RMB RMB RMB US$
(in millions)
1,749
1,744
4,244
1,824
1,319
18,435 18,243 21,530 19,923 18,096 2,773
202
14,113 28,130 36,753 23,058 24,820 3,804
45,928 59,418 79,394 67,955 58,011 8,890
20,533 25,574 26,874 51,278 47,943 7,348
144,430 162,240 185,830 200,169 187,249 28,698
30,295 42,162 68,784 69,182 58,369 8,945
34,651 29,220 24,146 19,537 22,718 3,482
68,898 75,625 97,097 93,324 85,682 13,132
— —
—
1
5
71,548 84,836 86,715 103,442 100,354 15,380
186
75,532 86,615 88,733 105,703 101,567 15,566
1,142
6
—
5
—
5
1,213
2,018
2,261
3,984
1,779
6
Notes:
(1)
Effective from January 1, 2018, we adopted ASC Topic 606, a new accounting standard on the recognition of revenue issued by FASB in 2014, and have applied this accounting
standard retrospectively to the years ended December 31, 2016 and 2017.
(2)
Share-based compensation was included in the related operating expense categories as follows:
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Product development
Sales and marketing
General and administrative
For the Year Ended December 31,
2020
2016 2017 2018 2019
RMB RMB RMB RMB RMB US$
(in millions)
2,080 1,013 934 919 964 148
393 186 156 144 159 24
1,087 635 617 651 750 115
(3)
(4)
(5)
(6)
In 2017 and 2018, we disposed certain long-term investments and recognized a gain of RMB1.4 billion and RMB1.2 billion, respectively. In January 2018, we adopted a new financial
instruments accounting standard ASU No. 2016-01, which requires equity investments to be measured at fair value with subsequent changes recognized in net income, except for those
accounted for under the equity method or requiring consideration. Fair value changes for such equity investments and exchangeable notes were a fair value loss of RMB3.1 billion, a
fair value gain of RMB2.3 billion and a fair value loss of RMB612 million for the year ended December 31, 2018, 2019 and 2020, respectively. See “Item 5. Operating and Financial
Review and Prospects — Results of Operations” for further information. The new standard also changes the accounting for investments without a readily determinable fair value and
that do not qualify for the practical expedient to estimate fair value. A policy election can be made for these investments whereby investment will be carried at cost and adjusted in
subsequent periods for any impairment or changes in observable prices of identical or similar investments.
Each ADS represents 0.125 ordinary shares.
Effective from January 1, 2019, we adopted ASC No. 2018-11, a new accounting standard on the recognition of right-of-use assets and lease liabilities issued by FASB in 2018, and
have applied this accounting standard on a modified retrospective basis and have elected not to restate comparative periods. See Notes 2 and 11 to our audited consolidated financial
statements included elsewhere in this annual report for further information.
One of our subsidiaries issued redeemable preferred shares to certain third-party investors in 2019. These preferred shares are redeemable at a holder’s option when that subsidiary
fails to complete a qualified IPO in a pre-agreed period of time since its issuance with a redemption price measured by 10% interest per annum. These preferred shares are therefore
accounted for as redeemable non-controlling interests in mezzanine equity and are accreted to the redemption value over the period starting from the issuance date. In 2020, we lost the
control in this subsidiary, and therefore financial position and results of operations of this subsidiary was deconsolidated.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Relating to Our Business and Industry
Pandemics (such as COVID-19), epidemics, or fear of spread of contagious diseases could disrupt the travel industry and our operations, which
could materially and adversely affect our business, financial condition, and results of operations.
Global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as Ebola virus disease (EVD),
coronavirus disease 2019 (COVID-19), Middle East respiratory syndrome (MERS), severe acute respiratory syndrome (SARS), H1N1 flu, H7N9 flu,
and avian flu could disrupt the travel industry and our business operations in China and elsewhere in the world, reduce or restrict demand for travel and
travel-related products and services, or result in regional or global economic distress, which may materially and adversely affect our business, financial
condition, and results of operations. Any one or more of these events or recurrence may adversely affect our sales results, or even for a prolonged period
of time, which could materially and adversely affect our business, financial condition, and results of operations.
The current COVID-19 pandemic has already adversely affected many aspects of our business. Since January 2020, we have experienced, and
may continue to experience, a significant decline in travel demand resulting in significant user cancelations and refund requests and reduced new orders
relating to international and domestic travel and lodging. Since February 2020, supply of domestic transportation tickets and international air tickets also
has dropped significantly in response to comprehensive containment measures in China and other international regions. We have actively assisted our
users in their cancelation and refund requests and have been working with our ecosystem partners to prepare for difficult market conditions, for which
we have incurred and may continue to incur significant cash outflows.
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In addition, our China-based facilities underwent temporary yet prolonged closure in February 2020, and most of our employees had worked from
home for weeks before they reported back to work, both as part of China’s nationwide efforts to contain the spread of the COVID-19. We and our
ecosystem partners are still recovering from the general shutdown and delay in commencement of operations in China. Even though our business is
currently operational, if the COVID-19 situation deteriorates, our service capacity and operational efficiency may be adversely affected again due to
insufficient workforce as a result of temporary travel restrictions in China and the necessity to comply with disease control protocols in our business
facilities. Our ecosystem partners’ abilities to timely deliver products and services and respond to rescheduling or cancelation requests have been, and
again may be, adversely affected for similar reasons, especially those located in critical regions in China.
The global spread of COVID-19 have also affected our overseas ecosystem partners and employees working outside China. While the duration of
this disruption to our business and related financial impacts cannot be reasonably estimated at this time, we expect that our overseas business will
continue to be adversely affected in 2021. The pandemic drove a significant decline in travel demand resulting in reservation cancelations and reduced
new orders. In addition, the allowance for credit losses and impairments of long-term investments both increased. In response to the COVID-19
pandemic, we have swiftly adopted cost control measures to mitigate a significant slowdown in user demand. For the year ended December 31, 2020,
our revenues were materially and adversely affected as a result of the domestic and international travel restrictions and significant incremental costs and
expenses incurred to facilitate our users’ cancelations and refund requests. In addition, we made provisions for the expected difficulty in collection of
receivables, which resulted in additional allowance for expected credit losses from the receivables due from our customers, and significant downward
adjustments and impairment to our long-term investments as the impacts of the COVID-19 pandemic on certain of our long-term investments are
considered to be other than temporary. Our net revenues for the year ended December 31, 2020 decreased by 49% from 2019. While the duration and the
development of the pandemic is difficult to predict, our performance in terms of our key financial metrics such as revenues and gross margin generally
improved starting from the third quarter of 2020 compared to the first two quarters, benefiting from the containment of the COVID-19 pandemic in
China starting from the third quarter of 2020. Quarantine measures or travel restrictions imposed by government authorities may significantly impede
cross-border travel. We have seen a slower recovery of the international travel market and, in turn, a slower recovery of our international business. We
have noted Chinese travelers shifting their preferences towards emerging demand for short-haul travel, local trips, and domestic boutique and premium
accommodation experiences. We have introduced novel products in order to capture these emerging trends and have proactively leveraged our live
streaming function to promote local attractions and activities. However, we cannot assure you that these initiatives will be effective as expected, or that
we will be able to act promptly to cater to the travelers’ emerging traveling preferences in the future. We will continue to monitor and evaluate the
financial impacts on our financial condition, results of operations, and cash flows in future periods. In the event of prolonged impact of the COVID-19
pandemic on our financial condition and cash flows, we cannot assure you that additional financing will be available to us on reasonable terms, or at all,
should we require it. The global spread of COVID-19 pandemic in a significant number of countries around the world, such as the United States, has
resulted in, and may intensify, global economic distress, and the extent to which it may affect our financial condition, results of operations, and cash
flows will depend on future developments, which are highly uncertain and cannot be predicted. In addition, the recent financial turmoil leading to
vitality in the financial and securities markets, especially since the COVID-19 pandemic, has generally made access to capital less certain and increased
the cost of obtaining new capital. As we manage through the slowdown in our business due to the COVID-19 pandemic, we cannot assure you that
additional financing will be available to us on reasonable terms, or at all.
Our China business showed strong recovery momentum starting from the third quarter of 2020. However, we cannot assure you that the
COVID-19 pandemic can be eliminated or contained in the near future, or at all, or a similar outbreak will not occur again. Since the beginning of 2021,
a few waves of COVID-19 infections have emerged in various regions of China. In early 2021, precautionary measures, including varying levels of
travel restrictions and encouragement of reduced travel during the Chinese New Year, were reinstated in China. These travel restrictions reduce users’
demand for our products, and are expected to materially and adversely affect our results of operations in the first quarter of 2021 and potentially beyond.
We cannot assure you when these travel restrictions will be lifted. If the COVID-19 pandemic and the resulting disruption to our business were to extend
over a prolonged period, it could materially and adversely affect our business, financial condition, and results of operations.
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Our business could suffer if we do not successfully manage current growth and potential future growth, or if we are unable to execute our strategies
effectively.
Our business has grown significantly as a result of both organic growth of existing operations and acquisitions, and, despite the current COVID-19
pandemic, we may experience such growth from time to time in the future. We have significantly expanded, and may further expand, our operations and
workforce, as a result of the continued growth of our service offerings, user base, and geographic coverage. For example, we have invested in, and may
continue to invest in, organic growth by rolling out new business initiatives focusing on a diverse range of areas including expanding our one-stop travel
offerings and upgrading our content capabilities. For the year ended December 31, 2020, we invested RMB7.7 billion (US$1.2 billion) in product
development. If such new business initiatives fail to perform as expected, our financial condition and results of operations could be adversely affected.
Our growth to date has placed, and our anticipated future operations will continue to place, significant strain on our management, systems, and
resources. In addition to training and managing our workforce, we will need to continue to improve and develop our financial and managerial controls
and our reporting systems and procedures. We cannot assure you that we will be able to efficiently or effectively manage the growth of our operations,
and any failure to do so may limit our future growth and hamper our business strategy.
We are growing our global presence through a combination of owned brands, direct investments as well as strategic partnerships. As we continue
to increase our product and service offerings, we will further upgrade our content capabilities and deliver more appealing content in new and diversified
formats, including live streaming, to improve user engagement. In addition, we will continue to invest in AI, big data analytics, and cloud technologies,
and further enhance our technology and cloud infrastructure. All these efforts will require significant managerial, financial and human resources. We
cannot assure you that we will be able to effectively manage our growth or to execute all these strategies successfully or that our new business initiatives
will be successful. If we are not able to manage our growth or execute our strategies effectively, our expansion may not be successful and our business
and prospects may be materially and adversely affected.
We have sustained losses in the past and may experience earnings declines or net losses in the future.
We sustained net losses in the past, and we cannot assure you that we can sustain profitability or avoid net losses in the future. Although we
swiftly adopted cost control measures in response to the COVID-19 pandemic, our operating expenses may still increase in the future and the degree of
increase in these expenses is largely based on anticipated growth, revenue trends and competitive pressure. As a result, any decrease or delay in
generating additional sales volume and revenues and increase in our operating expenses may result in substantial operating losses. Moreover,
consolidation of Qunar’s financial statements starting from December 31, 2015 had negatively impacted our financial statements previously, which may
happen again in the future.
Our business is sensitive to global economic conditions. A severe or prolonged downturn in the global or Chinese economy may have a material and
adverse effect on our business, and may materially and adversely affect our growth and profitability.
The COVID-19 pandemic had a severe and negative impact on the Chinese and the global economy in 2020. Whether this will lead to a prolonged
downturn in the economy is still unknown. Even before the outbreak of the COVID-19, the global macroeconomic environment was facing numerous
challenges. The growth rate of the Chinese economy had already been slowing since 2010. There is considerable uncertainty over the long-term effects
of the expansionary monetary and fiscal policies which had been adopted by the central banks and financial authorities of some of the world’s leading
economies, including the United States and China, even before 2020. Unrest, terrorist threats, and the potential for war in the Middle East and elsewhere
may increase market volatility across the globe. There have also been concerns about the relationship between China and certain other countries,
including the surrounding Asian countries, which may potentially have economic effects. In particular, there is significant uncertainty about the future
relationship between the United States and China with respect to trade policies, treaties, government regulations, and tariffs. The terms of the United
Kingdom’s exit from the European Union, commonly referred to as “Brexit,” resulting in market volatility and exchange rate fluctuations from time to
time both globally and most specifically in the United Kingdom and rest of the Europe. Brexit has created significant uncertainty about the future
relationship between the United Kingdom and the European Union. These developments, or the perception that any of them could occur, may adversely
affect European and worldwide economic and market conditions. Economic conditions in China are sensitive to global economic conditions, as well as
changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged
slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations, and financial condition.
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Our business and operations are primarily based in China and most of our revenues are derived from our operations in China. Accordingly, our
financial results have been, and are expected to continue to be, affected by the economy and travel industry in China. Since we derive the majority of our
revenues from accommodation reservation, transportation ticketing, and packaged-tour and in-destination activity services in China, any severe or
prolonged slowdown in the global or Chinese economy or the recurrence of any financial disruptions could reduce expenditures for travel, which in turn
may adversely affect our results of operations and financial condition in a number of ways. For example, the weakness in the economy could erode
consumer confidence which, in turn, could result in changes to consumer spending patterns relating to travel products and services. If consumer demand
for travel products and services we offer decreases, our revenues may decline. Furthermore, continued turbulence in the international markets may
adversely affect our ability to access the capital markets to meet liquidity needs.
General declines or disruptions in the travel industry may materially and adversely affect our business and results of operations.
Our business is significantly affected by the trends that occur in the travel industry in China and globally, including the accommodation
reservation, transportation ticketing, and packaged-tour and in-destination activity sectors. As the travel industry is highly sensitive to business and
personal discretionary spending levels, it tends to decline during general economic downturns. The recent worldwide recession has led to a weakening in
the demand for travel services. Other trends or events that tend to reduce travel and are likely to reduce our revenues include:
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actual or threatened war or terrorist activities;
the COVID-19 pandemic;
an outbreak of EVD, MERS, SARS, H1N1 flu, H7N9 flu, and avian flu, or any other serious contagious diseases;
increasing prices in the hotel, transportation ticketing, or other travel-related sectors;
increasing occurrence of travel-related accidents;
political unrest, civil strife, or other geopolitical uncertainty;
natural disasters or poor weather conditions, such as hurricanes, earthquakes, or tsunamis, as well as the physical effects of climate change,
which may include more frequent or severe storms, flooding, rising sea levels, water shortage, droughts, and wildfires; and
any travel restrictions in China and elsewhere in the world, such as entry restrictions related to the COVID-19 pandemic and quarantine
measures or other security procedures implemented in connection with any major events in China and elsewhere in the world.
We could be severely and adversely affected by declines or disruptions in the travel industry and, in many cases, have little or no control over the
occurrence of such events. Such events could result in a decrease in demand for our travel and travel-related products and services. This decrease in
demand, depending on the scope and duration, could significantly and adversely affect our business and financial performance over the short and long
term. For a discussion of impact of the COVID-19 pandemic on our business, see “—Pandemics (such as COVID-19), epidemics, or fear of spread of
contagious diseases could disrupt the travel industry and our operations, which could materially and adversely affect our business, financial condition,
and results of operations.”
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If we are unable to maintain existing relationships with ecosystem partners and strategic alliances, or unable to establish new arrangements with
ecosystem partners and strategic alliances at or on favorable terms or at terms similar to those we currently have, or at all, our business, market
share, and results of operations may be materially and adversely affected.
We rely on ecosystem partners, such as hotels and airlines, and other third party agents to make their services available to users through us, and
our business prospects depend on our ability to maintain and expand relationships with ecosystem partners and other third party agents. If we are unable
to maintain satisfactory relationships with our existing ecosystem partners, or if our ecosystem partners establish similar or more favorable relationships
with our competitors, or if our ecosystem partners increase their competition with us through their direct sales, or if any one or more of our ecosystem
partners significantly reduce participation in our services for a sustained period of time or completely withdraw participation in our services, our
business, market share, and results of operations may be materially and adversely affected. To the extent any of those major or popular ecosystem
partners ceased to participate in our services in favor of one of our competitors’ systems or decided to require consumers to purchase services directly
from them, our business, market share, and results of operations may suffer.
Our business depends significantly upon our ability to contract with hotels in advance for the guaranteed availability of certain hotel rooms. We
rely on hotel partners to provide us with rooms at discounted prices. However, our contracts with our hotel partners are not exclusive and most of the
contracts must be renewed semi-annually or annually. We cannot assure you that our hotel partners will renew our contracts in the future on favorable
terms or terms similar to those we have agreed to. The hotel partners may reduce the commission rates on bookings made through us. Furthermore, in
order to maintain and grow our business and to effectively compete with many of our competitors in all potential markets, we will need to establish new
arrangements with hotels and accommodations of all ratings and categories in our existing markets and in new markets. We cannot assure you that we
will be able to identify appropriate hotels or enter into arrangements with those hotels on favorable terms, if at all. Such failure could harm the growth of
our business and adversely affect our operating results and financial condition, which consequently will impact the trading price of our ADSs.
We derive revenues and other significant benefits from our arrangements with major domestic airlines in China and international airlines. Our
airline ticket partners allow us to book and sell tickets on their behalf and collect commissions on tickets booked and sold through us. Although we
currently have supply relationships with these airlines, they also compete with us for ticket bookings and have entered into similar arrangements with
many of our competitors and may continue to do so in the future. Such arrangements may be on better terms than we have. On July 1, 2016, the four
largest airlines in China announced that third-party ticketing agents are prohibited from selling tickets for domestic flights on third-party platforms, such
as ours. Additionally, on July 1, 2016, most major domestic airlines also replaced their commissions and rebate incentives completely with a reduced,
fixed “admin fee” per ticket. The loss of ecosystem partner relationships or further adverse changes in major business terms with our ecosystem partners
would materially impair our operating results and financial condition as we would lose an increasingly significant source of our revenues.
We generated part of our revenues through commissions from ecosystem partners that we form strategic alliances with, including our hotel
partners, airline ticket partners and other ecosystem partners. We cannot assure you, however, that we will be able to successfully establish and maintain
strategic alliances with third parties which are effective and beneficial for our business. Our inability to do so could have a material adverse effect on our
market penetration, revenue growth and profitability.
Strategic acquisition of complementary businesses and assets create significant challenges, such as dilutive effect on our equity securities and
impact on our financial performance, that may materially and adversely affect our business, reputation, results of operations, and financial
condition.
We have made and intend to continue to make strategic acquisitions in the travel industry in Greater China and overseas. For example, in October
2015, we completed a share exchange transaction with Baidu Inc., or Baidu, whereby we obtained approximately 45% of the aggregate voting interest of
Qunar in exchange for our newly issued ordinary shares. Subsequently, we issued ordinary shares represented by ADSs to certain special purpose
vehicles holding shares solely for the benefit of certain Qunar employees and, in return, we received Class B ordinary shares of Qunar from these
employees. We directly injected these shares to a third-party investment entity dedicated to investing in business in China. From an accounting
perspective, we consolidated the financial statements of these non-U.S. investment entities and started to consolidate Qunar’s financial statements from
December 31, 2015. In October 2016, we participated as a member in the buying consortium in Qunar’s going-private transaction and rolled our then
existing equity stake into the entity that wholly owns Qunar upon the completion of the transaction in February 2017. In addition, in December 2016, we
consummated an acquisition transaction whereby shares held by nearly all of the shareholders of Skyscanner, a leading global travel search site
headquartered in Edinburgh, United Kingdom, were acquired by Trip.com Group (then known as Ctrip.com International, Ltd.).
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If we are presented with appropriate opportunities, we may continue to acquire complementary businesses and assets in the future. However,
strategic acquisitions and the subsequent integration of new businesses and assets into our own would require significant attention from our management
and could result in a diversion of resources from our existing business, which in turn could adversely affect our business operations. In addition,
acquisitions could result in potential dilutive issuances of equity securities, use of substantial amounts of cash, and exposure to potential ongoing
financial obligations and unforeseen or hidden liabilities of the acquired business. The cost and duration of, and difficulties in, integrating newly
acquired businesses and managing a larger overall business could also materially exceed our expectations. Moreover, we may not be able to achieve our
intended strategic strategies and record substantial impairment charges to goodwill, if we fail to successfully integrate the newly acquired business or
manage a larger business. Any such negative developments could materially and adversely affect our business, reputation, results of operations, and
financial condition.
Our strategy to invest in complementary businesses and assets and establish strategic alliances involves significant risk and uncertainties that may
have a material adverse effect on our business, reputation, financial condition, and results of operations.
As part of our plan to expand our product and service offerings, we have made and intend to make strategic investments in the travel service
industries in Greater China and overseas. In addition to our transactions relating to Qunar and Skyscanner described elsewhere in this annual report, the
investments and acquisitions we made in the past few years include, among others: (i) our acquisition of 38% share capital of eLong, Inc. in May 2015,
and a subsequent equity investment in the Tongcheng-Elong Holdings Limited (SEHK: 0780) in March 2018 in exchange for our prior holdings in
eLong, Inc.; (ii) investment of approximately RMB3.0 billion in approximately 466 million A shares of China Eastern Airlines in a private placement;
(iii) the exchange of our previously held equity interest in Homeinns Hotel Group for 22% equity interest of BTG Hotels (Group) Co., Ltd.; (iv) our
share exchange with Naspers Limited and our investment in the ordinary shares and Class B shares of MakeMyTrip Limited, or MakeMyTrip, in August
2019; and (v) our acquisition of substantially all of the remaining equity interest of an offline travel agency company in which we previously held
approximately 48% equity interest in May 2018. In addition, in November 2019, we and TripAdvisor, Inc. (Nasdaq: TRIP), or TripAdvisor, agreed on a
strategic partnership to expand global cooperation through various contracts. We and TripAdvisor agreed through our respective subsidiaries to form and
jointly control a joint venture. To broaden our product offerings and enrich our platform content, we and TripAdvisor have agreed to share inventory in
travel categories by means of presenting travel product offerings and contents of both companies on our platform as well as on the platform of
TripAdvisor. In November 2019, we obtained control of an online travel agency company in which we previously had held 51% equity interest with
substantive participating rights being held by the non-controlling shareholder. For a discussion of our investments and acquisitions, see “Item 4.B.
Information on the Company — Business Overview — Strategic Investments and Acquisitions”
If the ADS or share prices of the public companies that we have invested in or may invest in the future which are classified as equity securities
with readily determinable fair values investments decline and become lower than our share purchase prices, as have happened historically, we could
record changes in fair value recorded in the income statement under U.S. GAAP, which in turn would adversely affect our financial results for the
relevant periods. In addition, if any of our investees in which our investments are classified as equity method investments incur net losses in the future,
we will share their net losses proportionate to our equity interest in them.
Our strategic investments could also subject us to other uncertainties and risks, and our failure to address any of these uncertainties and risks,
among others, may have a material adverse effect on our financial condition and results of operations:
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diversion of our resources and management attention;
high acquisition and financing costs;
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failure to achieve our intended objectives or benefits in making these investments or revenue-enhancing opportunities;
exposure to liabilities, third-party claims, or legal proceedings involving our invested or acquired business;
potential claims or litigation regarding our board’s exercise of its duty of care and other duties required under applicable law in connection
with any of our significant investments approved by the board; and
failure to be in full compliance with applicable laws, rules and regulations.
In particular, our strategy of investing in a competing business could be adversely affected by uncertainties in the implementation and enforcement
of the PRC Anti-Monopoly Law. Under the PRC Anti-Monopoly Law, companies undertaking mergers, acquisitions, or other transactions that may be
deemed as concentrations in China must notify the anti-monopoly law enforcement authority of the PRC State Council, which currently is the State
Administration for Market Regulation, or the SAMR, in advance of any transaction where the parties’ revenues in the China market and global market
exceed certain thresholds and the buyer would obtain control of, or decisive influence over, the target. There are numerous factors the anti-monopoly
law enforcement authority considers in determining “concentrations,” depending on certain criteria, the anti-monopoly law enforcement authority will
conduct anti-monopoly review of transactions in respect of which it was notified, including (1) merger of undertakings; (2) acquisition of control over
other undertakings by an undertaking by acquiring equities or assets; or (3) acquisition of control over, or the possibility of exercising decisive influence
on, other undertakings by an undertaking by contract or by any other means. In light of the uncertainties relating to the interpretation, implementation
and enforcement of the PRC Anti-Monopoly Law, we cannot assure you that the anti-monopoly law enforcement authority will not deem our past and
future acquisitions or investments, including the ones referenced herein or elsewhere in this annual report, to have met the filing criteria under the PRC
Anti-Monopoly Law and therefore demand a filing for merger review. Before the SAMR issued the Anti-Monopoly Guidelines for the Internet Platform
Economy Sector on February 7, 2021 that clarifies at the first time the filing procedures is applicable to the concentrations involving variable interest
structure, there had been limited cases of the anti-monopoly law enforcement authority’s anti-monopoly review of filings involving companies with a
“variable interest entity” structure, or VIE structure, similar to ours. We believe, after consultation with our PRC legal counsel, it is unlikely that we are
subject to sanctions for failure to conduct review of filing under the PRC Anti-Monopoly Law for our acquisition of shares of Qunar in 2015. However,
we cannot make any assurance, as this is essentially subject to the discretion of the relevant governmental authority. If we are deemed to have violated
the PRC Anti-Monopoly Law for failing to file the notification of concentration and request for review, we could be subject to a fine of up to
RMB500,000, and the parts of the transaction causing the prohibited concentration could be ordered to be unwound. Such unwinding could affect our
business and financial results, and harm our reputation. Further, although we believe, after consultation with our PRC legal counsel, it is unlikely that
our current business cooperation arrangements with Qunar would be deemed as violation to the PRC Anti-Monopoly Law in any material aspects, which
will be subject to the discretion of the relevant governmental authority. If any of our business cooperation arrangements with Qunar are determined to
have violated the PRC Anti-Monopoly Law, we could be subject to sanctions including an order to cease the relevant activities, confiscation of illegal
gains and fines of 1% to 10% of our sales revenue from the previous year.
In addition, we establish strategic alliances with various third parties to further our business purpose from time to time. Strategic alliances with
third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the counter-
party, an increase in expenses incurred in establishing new strategic alliances, inefficiencies caused by failure to integrate strategic partners’ businesses
with our own, and unforeseen levels of diversion of our resources and management attention, any of which may materially and adversely affect our
business.
As a result of any of the above factors, any actual or perceived failure to realize the benefits we expected from these investments may materially
and adversely affect our business and financial results and cause the trading price of our ADSs to decline.
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We have incurred net current liabilities and net operating cash outflow in the past, and may not be able to achieve or maintain net assets or net
operating cash inflow in the future.
We had net current liabilities of RMB1.2 billion as of December 31, 2019, as compared to net current assets of RMB10.6 billion as of
December 31, 2018, primarily due to a decrease of RMB13.7 billion in our short-term investments, as we strategically invested a portion of the cash
previously invested in short-term financial products to long-term products in 2019 to achieve an optimized rate of investment return. We had net current
liabilities of RMB358 million (US$55 million) as of December 31, 2020, as compared to net current liabilities of RMB1.2 billion as of December 31,
2019, which was primarily due to a decrease in accounts payable of RMB7.8 billion (US$1.2 billion) and accounts receivable of RMB3.5 billion
(US$543 million), which was as a result of the impact of the COVID-19 pandemic, partially offset by an increase in short-term debt and current portion
of long-term debt of RMB3.1 billion (US$483 million), mainly due to the loan facility we obtained in 2020. There can be no assurance that we will not
experience liquidity problems in the future. We may not be able to fulfill our obligation in providing travel products or services to our users in respect of
advances from customers, the failure of which may negatively affect our cash flow position. If we fail to generate sufficient revenue from our
operations, or if we fail to maintain sufficient cash and financing, we may not have sufficient cash flows to fund our business, operations and capital
expenditure and our business and financial position will be adversely affected.
We had net cash used in operating activities of RMB3.8 billion (US$588 million) as of December 31, 2020. While we believe that we have
sufficient working capital to fund our current operations, we cannot guarantee that we will not experience cash outflow from our operating activities
again in the future. If we are unable to maintain adequate working capital, we may default on our payment obligations and may not be able to meet our
capital expenditure requirements, which may have a material adverse effect on our business, financial condition and results of operations.
We recorded a significant amount of goodwill and indefinite lived intangible assets in connection with our strategic acquisitions and investments,
and we may incur material impairment charges to our goodwill and indefinite lived intangible assets if the recoverability of these assets become
substantially reduced.
In connection with our strategic acquisitions over the recent years, we recorded a significant amount of goodwill and indefinite lived intangible
assets booked in our financial statements. As of December 31, 2020, our goodwill was RMB59.4 billion (US$9.1 billion). ASC 350 “Intangibles—
Goodwill and Other” provides that intangible assets that have indefinite useful lives and goodwill will not be amortized but rather will be tested at least
annually for impairment. ASC 350 also requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable from its undiscounted future cash flow. We operate our business with a single reporting unit.
We performed qualitative assessment by comparing market capitalization with the carrying value of our reporting unit to determine whether it is
necessary to perform the quantitative impairment test. For 2018, 2019 and 2020, we did not recognize any impairment charges for goodwill or indefinite
lived intangible assets, because there was no indicator of impairment identified in our qualitative assessment. If different judgments or estimates had
been utilized, however, material differences could have resulted in the amount and timing of the impairment charge. We may potentially incur significant
impairment charges if the recoverability of these assets become substantially reduced in the future. Any such impairment charges would adversely affect
our financial condition and results of operations. In addition, in the case that the trading prices of our ADSs decline as a result of the potentially
prolonged impacts from the COVID-19 pandemic or other factors, and the amount by which the share price exceeded the carrying value of the reporting
unit becomes minimal, it may be considered an indicator for us to perform interim goodwill impairment test and we may need to recognize impairment
on goodwill or other long lived assets. See “Item 5. Operating and Financial Review and Prospects — Critical Accounting Policies and Estimates—
Goodwill, Intangible Assets, and Long-Lived Assets.”
If we do not compete successfully against new and existing competitors, we may lose our market share, and our business may be materially and
adversely affected.
We compete primarily with other travel agencies, including domestic and foreign consolidators of hotel accommodation and airline tickets as well
as traditional travel agencies. In the future, we may also face increasing competition from new domestic travel agencies or international players that seek
to expand in China, hotels and airlines, as well as content platforms and social networks entering into the travel industry.
We may face more competition from hotels and airlines as they enter the discount rate market directly or through alliances with other travel
consolidators. In addition, international travelers have become an increasingly important user base. Competitors that have formed stronger strategic
alliances with overseas travel consolidators may have more effective channels to address the needs of travelers in China to travel overseas. Furthermore,
we do not have exclusive arrangements with our ecosystem partners. The combination of these factors means that potential entrants to our industry face
relatively low entry barriers.
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In the past, certain competitors launched aggressive advertising campaigns, special promotions and engaged in other marketing activities to
promote their brands, acquire new users or to increase their market shares. In response to such competitive pressure, we started to take and may continue
to take similar measures and as a result will incur significant expenses, which in turn could negatively affect our operating margins in the quarters or
years when such promotional activities are carried out. For example, we launched a promotion program in recent years to offer certain selected
transportation tickets, hotel rooms, packaged tours, and in-destination activities as well as grant of e-coupons to our users in response to promotion
campaigns that our competitors have launched. Primarily as a result of the enhanced marketing efforts and additional investment in product
developments in response to the intensified market competition, our operational margin was negatively affected. In addition, some of our existing and
potential competitors may have competitive advantages, such as significantly larger active user base on mobile or other online platforms, greater
financial, marketing and strategic relationships, alliances or other resources or name recognition and technology capabilities, and may be able to imitate
and adopt our business model. In particular, other major internet platforms may benefit from the existing user base of their other services. These
platforms can utilize the traffic they already obtain and direct the users from their other services offerings to their travel services and further achieve
synergies effects. Furthermore, in order to attract and retain users and compete against our competitors, we have deployed significant resources in
research and development to enhance our AI, big data analytics, and cloud technologies. However, we cannot assure you that the effectiveness of our
data analytics capabilities and technologies will be comparable or superior to our competitors continuously. If any of our competitors provides
comparable or better content feed to the users on their platforms, or if we are unable to provide sufficient quality content to our users’ satisfaction
leveraging our data analytics capabilities, we may suffer a decline in our user traffic. We cannot assure you that we will be able to successfully compete
against new or existing competitors. In the event we are not able to compete successfully, our business, results of operations, and profit margins may be
materially and adversely affected.
If we fail to further increase our brand recognition, we may face difficulty in maintaining existing and acquiring new users and business partners
and our business may be harmed.
We believe that maintaining and enhancing our brands depends in part on our ability to grow our user base and obtain new business partners.
Some of our potential competitors already have well-established brands in the travel industry. The successful promotion of our brands will depend
largely on our ability to maintain a sizeable and active user base, maintain relationships with our business partners, provide high-quality user support,
properly address user needs and handle user complaints and organize effective marketing and advertising programs. We are also subject to reputational
risks arising from user complaints. Users may raise complaints against us if they are dissatisfied with the travel products and services provided to them.
If we do not resolve the complaints effectively in a timely manner, our users may reduce their use of our platform and services, and may demand refund
or even further compensation from us by all practicable means, which could harm our reputation and brand image if these complaints are brought to
public sight, and materially and adversely affect our business, financial condition, and results of operations. If our user base significantly declines or
grows more slowly than our key competitors, the quality of our user support substantially deteriorates, or our business partners cease to do business with
us, we may not be able to cost-effectively maintain and promote our brands, and our business may be harmed.
Negative publicity related to us or in general with respect to the travel industry could impair our reputation, which in turn could materially and
adversely affect our business, results of operations, and price of our ADSs.
The reputation of our brands is critical to our business and competitiveness. Negative publicity with respect to us or the travel industry in general,
from time to time, whether or not we are at fault, including but not limited to those relating to our business, products and services, user experiences,
employee relationships and welfare, compliance with law, financial conditions or prospects, whether with or without merit, could impair our reputation
and adversely affect our business and operating results. Prospective users may be reluctant to engage in transactions with us if there is any negative
publicity in connection with the use of our services or products, the operation of our business and other aspects about us. In addition, the negative
publicity of any of our brands may extend far beyond the brand involved, especially due to our comprehensive presences in the travel industry in
general, to affect some or all of our other brands. Furthermore, negative publicity about other market players or isolated incidents, regardless of whether
or not it is factually correct or whether we have engaged in any inappropriate activities, may result in negative perception of our industry as a whole and
undermine the credibility we have established. Negative developments in the market may lead to tightened regulatory scrutiny and limit the scope of our
permissible business activities. We could lose significant number of users due to negative publicity with respect to us or the travel industry in general.
We rely on performance and brand marketing channels to generate a significant amount of traffic to our platforms and grow our business. From
time to time, we hire brand ambassadors to market our brands or our products and services that are important to our business. However, we cannot
assure you that the endorsement from our brand ambassadors or related advertisements will remain effective, that the brand ambassadors will remain
popular or their images will remain positive and compatible with the messages that our brand and products aim to convey. Furthermore, we cannot
assure you that we can successfully find suitable celebrities to replace any of our existing brand ambassadors if any of their popularities decline or if the
existing brand ambassadors are no longer able or suitable to continue the engagement, and termination of such engagements may have a significant
impact on our brand images and the promotion or sales of our products.
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If any of the foregoing were to occur, our business, financial condition, results of operations, and price of our ADSs could be materially and
adversely affected. We may incur additional costs to recover from the impact caused by the negative publicity, which may divert management’s attention
and other resources from our business and operations.
Our quarterly results are likely to fluctuate because of seasonality in the travel industry.
Our business experiences fluctuations, reflecting seasonal variations in demand for travel services. Consequently, our results of operations may
fluctuate from quarter to quarter. For example, the third quarter of each year generally contributes the highest portion of our annual net revenues
primarily due to the strong demand for both leisure and business travel activities during the summer.
Any failure to maintain satisfactory performance of our mobile platform, websites, and systems, particularly those leading to disruptions in our
services, could materially and adversely affect our business and reputation, and our business may be harmed if our infrastructure or technology is
damaged or otherwise fails or becomes obsolete.
The satisfactory performance, reliability, and availability of our infrastructure, including our mobile platform, websites, and systems, are critical to
the success of our business. Any system interruptions that result in the unavailability or slowdown of our mobile platform, websites, or other systems
and the disruption in our services could reduce the volume of our business and make us less attractive to users. Our customer service centers are
equipped with extensive computer and communications systems. Our technology platform and computer and communication systems are vulnerable to
damage or interruption from human error, computer viruses, fire, flood, power loss, telecommunications failure, physical or electronic break-ins,
hacking or other attempts at system sabotage, vandalism, natural disasters, and other similar events. For example, we experienced a network shut-down
for a few hours in May 2015 resulting in temporary disruption to our mobile platform and websites and user support, and a hotel booking system failure
for a few hours in October 2019 affecting temporary hotel booking services. No data leakage occurred in either incident. We have implemented
extensive measures to ensure prompt responses to any network shutdown, system failure, or similar incidents in the future, and to continue to update our
security protocol to protect our systems from any human error, third-party intrusions, viruses or hacker attacks, information or data theft, or other similar
activities. However, we cannot assure you that unexpected interruptions to our systems will not occur again in the future. We do not carry business
interruption insurance to compensate us for losses that may occur as a result of such disruptions. In addition, any such future occurrences could reduce
user satisfaction levels, damage our reputation and materially and adversely affect our business.
We use an internally developed booking software system that supports nearly all aspects of our booking transactions. Our business may be harmed
if we are unable to upgrade our systems and infrastructure quickly enough to accommodate future traffic levels, avoid obsolescence or successfully
integrate any newly developed or purchased technology with our existing system. Capacity constraints could cause unanticipated system disruptions,
slower response times, poor user support, impaired quality and speed of reservations and confirmations and delays in reporting accurate financial and
operating information. These factors could cause us to lose users and ecosystem partners, which would have a material adverse effect on our results of
operations and financial condition.
In addition, our future success will depend on our ability to adapt our products and services to the changes in technologies and internet user
behavior. For example, the number of people accessing the internet through mobile devices, including smart devices, mobile phones, tablets and other
hand-held devices, has increased in recent years, and we expect this trend to continue while 5G and more advanced mobile communications
technologies are broadly implemented. As we make our services available across a variety of mobile operating systems and devices, we are dependent
on the interoperability of our services with popular mobile devices and mobile operating systems that we do not control, such as Android, iOS, and
Windows. We ensure the interoperability of our services by optimizing our mobile apps and websites for different devices and operating systems and
implementing cloud technology to support unified backend operation of our platform. Any changes in such mobile operating systems or devices that
degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services. Further, if
the number of platforms for which we develop our services increases, which is typically seen in a dynamic and fragmented mobile services market such
as China, it will result in an increase in our costs and expenses. In order to deliver high-quality services, it is important that our services work well
across a range of mobile operating systems, networks, mobile devices, and standards that we do not control. If we fail to develop products and
technologies that are compatible with all mobile devices and operating systems, or if the products and services we develop are not widely accepted and
used by users of various mobile devices and operating systems, we may not be able to penetrate the mobile internet market. In addition, the widespread
adoption of new internet technologies or other technological changes could require significant expenditures to modify or integrate our products or
services. If we fail to keep up with these changes to remain competitive, our future success may be adversely affected.
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Our business depends substantially on the continuing efforts of our key executives, and our business may be severely disrupted if we lose their
services.
Our future success depends heavily upon the continued services of our key executives. We rely on their expertise in business operations, finance,
and travel services and on their relationships with our ecosystem partners and shareholders. If one or more of our key executives are unable or unwilling
to continue in their present positions, we may not be able to easily replace them. In that case, our business may be severely disrupted, we may incur
additional expenses to recruit and train personnel and our financial condition and results of operations may be materially and adversely affected.
In addition, if any of these key executives joins a competitor or forms a competing company, we may lose users and ecosystem partners. Each of
our executive officers has entered into a service contract with us that contains confidentiality and non-competition provisions. If any disputes arise
between our executive officers and us, we cannot assure you of the extent to which any of these agreements would be enforced in China, where most of
these executive officers reside and hold most of their assets, in light of the uncertainties with China’s legal system. See “—Risks Relating to Doing
Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”
If we are unable to attract, train and retain key individuals and highly skilled employees, our business may be adversely affected.
If our business continues to expand, we will need to hire additional employees, including ecosystem partner management personnel to maintain
and expand our ecosystem partner network, information technology and engineering personnel to maintain and expand our mobile platform, websites,
customer service centers and systems and customer service representatives to serve an increasing number of users. If we are unable to identify, attract,
hire, train and retain sufficient employees in these areas, users of our mobile platform, websites and customer service centers may not have satisfactory
experiences and may turn to our competitors, which may adversely affect our business and results of operations.
Our business is subject to the risks of international operations, including but not limited to, operational risk, compliance risk, and reputational risk.
We had overseas expansion of our business over the years and operate our business in many foreign jurisdictions such as European and southeast
Asian countries. As we plan to expand our global presence over the long-term through means of partnerships and investments, we are exposed to a
variety of risks in our business operations, including but not limited to, operational risk, compliance risk, and reputational risk. Compliance with foreign
laws and regulations that apply to our international operations increases our cost of doing business in foreign jurisdictions. These laws and regulations
include data privacy requirements, labor relations laws, tax laws, foreign currency-related regulations, anti-competition regulations, prohibitions on
payments to governmental officials, market access, import, export and general trade regulations, including but not limited to economic sanctions and
embargos. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers or our employees, and
prohibitions on the conduct of our business, including the loss of trade privileges. Any such violations could result in prohibitions on our ability to offer
our products and services in one or more countries, could delay or prevent potential acquisitions and could also materially damage our reputation, our
brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Compliance with these laws
requires a significant amount of management attention and effort, which may divert management’s attention from running our business operations and
could harm our ability to grow our business, or may increase our expenses as we engage specialized or other additional resources to assist us with our
compliance efforts. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties. We monitor our operations and
investigate allegations of improprieties relating to transactions and the way in which such transactions are recorded. Where circumstances warrant, we
provide information and report our findings to government authorities, but no assurance can be given that action will not be taken by such authorities. In
addition, as our business and operation expand in international markets, we could be exposed to increased foreign exchange risks for other currencies.
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The current tensions in international trade and rising political tensions, particularly between the United States and China, may adversely impact our
business, financial condition, and results of operations.
Recently there have been heightened tensions in international economic relations, such as the one between the United States and China. The U.S.
government has recently imposed, and may continue to impose additional, new, or higher tariffs on certain products imported from China to penalize
China for what it characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or higher tariffs on
certain products imported from the United States. Following mutual retaliatory actions for months, on January 15, 2020, the United States and China
entered into the Economic and Trade Agreement between the United States of America and the People’s Republic of China as a phase one trade deal,
effective on February 14, 2020.
In addition, political tensions between the United States and China have escalated due to, among other things, trade disputes, the COVID-19
pandemic, the passage of Safeguarding National Security in the Hong Kong Special Administrative Region by the Standing Committee of the PRC
National People’s Congress, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative
Region and the PRC central government and the executive orders issued by the U.S. government that prohibit certain transactions with certain selected
Chinese technology companies, and the Executive Order 13959 issued in November 2020 targeting transactions by U.S. persons in certain securities of
designated “Communist Chinese military companies.” As we work with a wide range of business partners in China and elsewhere in the world, should
any of our major business partners become subject to sanctions or restrictions by the U.S. government, our business may be adversely affected. Rising
political tensions could reduce levels of trades, investments, technological exchanges, and other economic activities between the two major economies,
which would materially and adversely affect the global economic conditions and the stability of global financial markets. Such tensions between the
United States and China, and any escalation thereof, may have a negative impact on the general, economic, political, and social conditions in China and,
in turn, adversely impacting our business, financial condition, and results of operations.
We may not be able to prevent others from using our intellectual property, which may harm our business and expose us to litigation.
We regard our domain names, trade names, trademarks, patents, proprietary know-how, and similar intellectual properties as critical to our
success. We try to protect our intellectual property rights by relying on intellectual property protection laws, confidentiality laws, and confidentiality
contracts. However, the provisions of such laws and contracts may not provide us with sufficient protection, and legal proceedings to protect our
intellectual properties from infringement could be difficult, time-consuming, and expensive in China. In addition, as our business operations further
evolves globally, we may not be able to enforce our intellectual property rights throughout the world, which may in turn adversely impact our
international operations and business. We may encounter significant problems in protecting and enforcing intellectual property rights in certain foreign
jurisdictions. The legal systems of certain countries do not favor the enforcement of intellectual property protection, which could make it difficult for us
to stop the infringement or misappropriation of our intellectual property rights. Proceedings to enforce our proprietary rights in foreign jurisdictions
could result in substantial costs and divert our efforts and attention from other aspects of our business.
The steps we have taken may be inadequate to prevent the misappropriation of our proprietary technology. Any misappropriation could have a
negative effect on our business and operating results. Furthermore, we may need to go to court to enforce our intellectual property rights. Litigation
relating to our intellectual property might result in substantial costs and diversion of resources and management attention. See “—Risks Relating to
Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”
We rely on services from third parties to carry out our business and to deliver our products to users, and if there is any interruption or deterioration
in the quality of these services, our users may not continue using our services.
We rely on third-party computer systems to host our websites, as well as third-party licenses for some of the software underlying our technology
platform. In addition, we rely on third-party transportation ticketing agencies to issue transportation tickets and travel insurance products, confirmations
and deliveries in some cities in Greater China. We also rely on third-party local operators to deliver on-site services to our packaged-tour and
in-destination activity users and other services, such as car services.
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Any interruption in our ability to obtain the products or services of these or other third parties or deterioration in their performance, such as server
errors or interruptions, or dishonest business conduct, could impair the timing and quality of our own service. If our service providers fail to provide
high-quality services in a timely manner to our users, or provide services that are substantially different from its description or without licenses or
permits as required by the relevant laws and regulations despite that we have so requested, violate any applicable rules and regulations, or involve in
incidents of negative publicity, our services will not meet the expectations of our users, our users may claim against us for damages and stop using our
online platforms, and our reputation and brand will be damaged. Furthermore, if our arrangement with any of these third parties is terminated, we may
not find an alternative source of support on a timely basis or on favorable terms to us.
We may be the subject of detrimental conduct by third parties, including complaints to regulatory agencies, negative blog postings, and the public
dissemination of malicious assessments of our business, which could have a negative impact on our reputation and cause us to lose market share,
ecosystem partners, users and revenues, and adversely affect the price of our ADSs.
We may be the target of anti-competitive, harassing, or other detrimental conduct by third parties. Such conduct may include complaints,
anonymous or otherwise, to regulatory agencies regarding our operations, accounting, revenues, business relationships, business prospects, and business
ethics. Additionally, allegations, directly or indirectly against us, may be posted in internet chat-rooms or on blogs or any websites by anyone, whether
or not related to us, on an anonymous basis. We may be subject to government or regulatory investigation as a result of such third-party conduct and
may be required to spend significant time and incur substantial costs to address such third-party conduct, and we cannot assure you that we will be able
to conclusively refute each of the allegations within a reasonable period of time, or at all. Our reputation may also be negatively affected as a result of
the public dissemination of anonymous allegations or malicious statements about our business, which in turn may cause us to lose market share,
ecosystem partners, users, and revenues and adversely affect the price of our ADSs.
We are subject to payment processing risk.
We accept a variety of different online payment methods and rely on third parties to process such payment. Acceptance and processing of these
payment methods are subject to certain rules and regulations and require payment of interchange and other fees. To the extent there are increases in
payment processing fees, material changes in the payment ecosystem, such as delays in receiving payments from payment processors or changes to rules
or regulations concerning payment processing, our revenues, operating expenses, and results of operation could be adversely impacted.
We also do not have control over the security measures of our third-party payment service providers, and security breaches of the online payment
systems that we use could expose us to litigation and possible liability for failing to secure confidential user information and could, among other things,
damage our reputation and the perceived security of all of the online payment systems that we use. If a well-publicized internet security breach were to
occur, users concerned about the security of their online payments may become reluctant to purchase our products and services through payment service
providers even if the publicized breach did not involve payment systems or methods used by us. We may also be subject to fraud and other illegal
activities in connection with the various payment methods that we offer, including online payment options. We may also be subject to various rules,
regulations, and requirements, regulatory or otherwise, governing electronic fund transfers and online payment, which could change or be reinterpreted
to make it difficult or impossible for us to comply with. If we fail to comply with these rules or requirements, we may be subject to fines and higher
transaction fees, and lose our ability to accept credit and debit card payments from our users, process electronic fund transfers, or facilitate other types of
online payments. If any of the above were to occur and damage our reputation or the perceived security of the payment systems that we use, we may
lose users as they may be discouraged from purchasing products or services on our platform, which may adversely affect our business and results of
operations.
If our hotel partners or users provide us with untrue information regarding the users’ stay or misrepresentations, we may not be able to recognize
and collect revenues to which we are entitled.
We generate substantially all of our accommodation reservation revenue through commissions from hotel reservation partners through our
platform. To confirm whether a user adheres to the booked itinerary, we routinely make inquiries with the hotel and, occasionally, with the user. We rely
on the hotel partner and the user to provide us truthful information regarding the user’s check-in and check-out dates, which forms the basis for
calculating the commission we are entitled to receive from the hotel partner. If our hotel partners or users provide us with untrue information with
respect to our users’ length of stay at the hotels, we would not be able to collect revenues to which we are entitled. In addition, using such untrue
information may lead to inaccurate business projections and plans, which may adversely affect our business planning and strategy.
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We may suffer losses if we are unable to predict the amount of inventory we will need to purchase during the peak holiday seasons.
During the peak holiday seasons in China, we establish limited merchant business relationships with selected ecosystem partners, in order to
secure adequate supplies for our users. In merchant business relationships, we buy hotel rooms and transportation tickets before selling them to our users
and thereby incur inventory risk. As we expanded our offline business in 2019, partially attributable to our packaged-tour products, our demands also
increased correspondingly. If we are unable to correctly predict demand for hotel rooms and transportation tickets that we are committed to purchase, we
would be responsible for covering the cost of the hotel rooms and transportation tickets we are unable to sell, and our financial condition and results of
operations would be adversely affected.
If tax benefits available to our subsidiaries in China are reduced or repealed, our results of operations could suffer.
Under the PRC Enterprise Income Tax Law, as amended, or the EIT Law, and the relevant implementation rules, foreign-invested enterprises, or
FIEs, and domestic enterprises are subject to EIT at a uniform rate of 25%. Certain enterprises will benefit from a preferential tax rate of 15% under the
EIT Law if they qualify as “high and new technology enterprises,” or HNTEs, or if they are located in applicable PRC regions, subject to certain general
restrictions described in the EIT Law and the related regulations.
In December 2008 and 2009, some of our PRC subsidiaries, Ctrip Computer Technology (Shanghai) Co., Ltd., or Ctrip Computer Technology,
Ctrip Travel Information Technology (Shanghai) Co., Ltd., or Ctrip Travel Information, Ctrip Travel Network Technology (Shanghai) Co., Ltd., or Ctrip
Travel Network, and Beijing Qunar Software Technology Co., Ltd., or Qunar Software, and one of our consolidated affiliated Chinese entities, Beijing
Qu Na Information Technology Co., Ltd., or Qunar Beijing, were each designated by relevant local authorities as a HNTE under the EIT Law with an
effective period of three years. Therefore, these entities were entitled to enjoy a preferential tax rate of 15%, as long as they maintained their
qualifications for HNTEs that are subject to verification by competent authorities and renewals every three years. The qualifications of Ctrip Computer
Technology, Ctrip Travel Information, and Ctrip Travel Network as HNTEs have been renewed and will expire by the end of 2022. Qunar Software and
Qunar Beijing are applying for the renewal of their HNTEs qualifications. The HNTE qualification is subject to a periodic review every three years by
the relevant PRC government authorities. Preferential tax treatment granted to our subsidiaries by the local governmental authorities is subject to this
periodic review and may be adjusted or revoked at any time. We cannot assure you that our subsidiaries and the consolidated affiliated Chinese entity
will continue to qualify as HNTEs when they are subject to reevaluation in the future. In 2001, the STA, the PRC Ministry of Finance, and the General
Administration of Customs jointly issued the Circular on Issues Concerning Preferential Tax Policies for the Western Development, or the Circular 202,
and started to implement preferential tax policy in China’s western region. According to the Circular 202, from 2001 to 2010, the companies located in
applicable jurisdictions covered by this circular are eligible to apply for a preferential income tax rate of 15% if their businesses fall within the
“encouraged” category of the Catalog of Industries, Products and Technologies Currently Encouraged to Develop by the State or the Catalog for
Guidance of Industries for Foreign Investment and the revenue derived from such “encouraged” businesses accounts for no less than 70% of the total
revenue. In 2011, the STA, the Ministry of Finance, and the General Administration of Customs jointly issued the Circular on Issues Concerning Tax
Policies for In-depth Implementation of Western Development Strategies, or the Circular 58, according to which the Catalog of Encouraged Industries in
Western Regions, or the Western Regions Catalog, would be applied instead of the two catalogs stipulated in the Circular 202 from 2011 to 2020.
According to the Western Regions Catalog issued by the PRC National Development and Reform Commission, or the NDRC, later in 2014, the
“encouraged” industries include the industries provided in the Guiding Catalog of Industrial Structure Adjustment, the Catalog for Guidance of
Industries for Foreign Investment, the Catalog of Advantageous Industries for Foreign Investment in the Central and Western Regions, and other
encouraged catalogs specifically applied in western regions. On April 23, 2020, the Ministry of Finance, the STA, and the NDRC jointly issued the
Announcement on Renewing the Enterprise Income Tax Policy for Western Development, which reduced the revenue percentage requirement of the
“encouraged” businesses to no less than 60% and would be applied from 2021 to 2030. Benefiting from this policy, Chengdu Ctrip, Chengdu Ctrip
International, and Chengdu Ctrip Information Technology Co., Ltd., or Chengdu Information, obtained approval from local authorities in 2012 and
2013, which recognized that the main businesses of such three companies belong to the “encouraged” catalog of the Guiding Catalog of Industrial
Structure Adjustment. Therefore, such entities were entitled to enjoy a preferential tax rate of 15%, as long as their “encouraged” businesses accounts
for no less than required percentage until 2030 pursuant to current policies. In the event that the preferential tax treatment for these entities is
discontinued, these entities will become subject to the standard tax rate at 25%, which would materially increase our tax obligations.
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We may be subject to legal or administrative proceedings regarding information provided on our online portals or other aspects of our business
operations, which may be time-consuming to defend.
Our online portals contain information about hotels, transportation, popular vacation destinations, and other travel-related topics posted by us as
well as third parties. It is possible that if any information accessible on our online portals contains errors or false or misleading information, third parties
could take action against us for losses incurred in connection with the use of such information. From time to time, we have become and may in the
future become a party to various legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to
breach of contract claims, intellectual property infringement, anti-competition claims, claims relating to our online ride-hailing services, advertising
services and pricing information we provided, and other matters. Although such proceedings are inherently uncertain and their results cannot be
predicted with certainty, we believe that the resolution of our current pending matters will not have a material adverse effect on our business,
consolidated financial position, results of operations, or cash flow. Regardless of the outcome and merit of such proceedings, any legal action can have
an adverse impact on us because of defense costs, negative publicity, diversion of management’s attention, and other factors. In addition, it is possible
that an unfavorable resolution of one or more legal or administrative proceedings, whether in China or in another jurisdiction, could materially and
adversely affect our financial position, results of operations, or cash flows in a particular period or damage our reputation.
We could be liable for breaches of internet security or fraudulent transactions by users of our online platforms and our websites.
Internet industry is facing significant challenges regarding information security and privacy, including the storage, transmission and sharing of
confidential information. In recent years, PRC government authorities have enacted legislation on internet use to protect personal information from any
unauthorized disclosure. In November 2016, the PRC Standing Committee of the National People’s Congress promulgated the PRC Cyber Security Law,
which became effective on June 1, 2017. The PRC Cyber Security Law requires that a network operator, which includes, among others, internet
information services providers, to take technical measures and other necessary measures in accordance with applicable laws and regulations and the
compulsory requirements of the national and industrial standards to safeguard the safe and stable operation of its networks, imposing a relatively vague
but broad obligation to provide technical support and assistance to the public and state security authorities in connection with criminal investigations or
for reasons of national security. The law further requires internet information service providers to formulate contingency plans for network security
incidents, report to the competent departments immediately upon the occurrence of any incident endangering cyber security, and take corresponding
remedial measures. Any violation of the PRC Cyber Security Law may subject us to warnings, fines, confiscation of illegal gains, revocation of licenses,
cancelation of filings, shutdown of websites, or criminal liabilities. See “Item 4.B. Information on the Company—Business Overview—PRC
Government Regulations—Regulations Related to Internet Information Security and Privacy Protection.”
We conduct a significant portion of our transactions through the internet, including our online platforms and websites. In such transactions,
secured transmission of confidential information (such as users’ itineraries, hotel and other reservation information, credit card information, personal
information, and billing addresses) over public networks and ensuring the confidentiality, integrity, availability, and authenticity of the information of
our users, hotel partners, and airline partners are essential to maintaining their confidence in our online products and services. Our current security
measures may not be adequate and may contain deficiencies that we fail to identify, and advances in technology, increased levels of expertise of hackers,
new discoveries in the field of cryptography or others could increase our vulnerability. For example, a third-party website that focuses on internet
security information exchange released news in March 2014 that as a result of a temporary testing function performed by us, certain data files containing
users’ credit card information had been stored on local servers maintained by us, which may lead to potential exposure of these users’ information to
hackers. We removed the cause of the potential security concern within two hours of the release of the news report and then examined all other possible
leaks and found that 93 users’ credit card information might have been downloaded by the above-mentioned website for the purpose of confirming
potential risks. Our business, results of operations, user experience, and reputation may be materially and adversely affected if similar incidents related
to internet security recur in the future. In August 2011, the PRC Supreme People’s Court and the PRC Supreme People’s Procuratorate issued judicial
interpretations regarding hacking and other internet crimes. However, its effect on curbing hacking and other illegal online activities still remains to be
seen.
We strive to comply with applicable data protection laws and regulations, as well as our privacy policies pursuant to our terms of use and other
obligations that we may have with respect to privacy and data protection. Significant capital, managerial, and human resources are required to enhance
information security and to address any issues caused by security failures. If we are unable to protect our systems and the information stored in our
systems from unauthorized access, use, disclosure, disruption, modification, or destruction, such problems or security breaches may cause loss, expose
us to litigation and possible liability to the owners of confidential information, disrupt our operations and may harm our reputation, and ability to attract
users.
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The PRC government regulates the air-ticketing, travel agency, internet industries, and certain other industries we operate in. If we fail to obtain or
maintain all pertinent permits and approvals or if the PRC government imposes more restrictions on these industries, our business may be adversely
affected.
The PRC government regulates the air-ticketing, travel agency, internet industries, and certain other industries we operate in. We are required to
obtain applicable permits or approvals from different regulatory authorities to conduct our business, including separate licenses for value-added
telecommunications, travel agency, and internet-related activities. If we fail to obtain or maintain any of the required permits or approvals in the future,
we may be subject to various penalties, such as fines or suspension of operations in these regulated businesses, which could severely disrupt our
business operations. As a result, our financial condition and results of operations may be adversely affected.
In particular, the Civil Aviation Administration of China and the NDRC regulate pricing of air tickets. The Civil Aviation Administration also
supervises commissions payable to air-ticketing agencies together with the China Air Transport Association. If restrictive policies are adopted by the
Civil Aviation Administration, NDRC, or the China Air Transport Association, or any of their regional branches, our air-ticketing revenue may be
adversely affected.
In addition, the PRC government may promulgate new laws and regulations, interpretation of existing laws and regulations, as well as regulatory
guidance and policies. We may not be able to always keep abreast of these developments, and we could be subject to regulatory or administrative
penalties and operational disruption if we are unable to comply with these laws, regulations, and policies in a timely fashion, or at all. For example, the
Standing Committee of the National People’s Congress promulgated the PRC E-Commerce Law on August 31, 2018, which took effect on January 1,
2019. Pursuant to the PRC E-Commerce Law, an e-commerce platform operator must take joint liabilities with the relevant merchants operating on its
platform and may be subject to warnings and fines where it fails to take necessary measures when (i) it knows or should have known that the products or
services provided by the merchants operating on its platform do not meet the personal or property safety requirements or such merchants’ other acts may
infringe on the lawful rights and interests of the consumers; or (ii) it has been informed that the merchants operating on its platform infringe any
intellectual property rights of any other third party but has not taken measures in time. In addition, with respect to products or services affecting the
consumers’ life and health, if an e-commerce platform operator fails to examine and verify the merchants’ qualification, or it fails to assure the
consumers’ security, which results in damages to consumers, it must take corresponding liabilities and may be subject to warnings and fines.
Furthermore, pursuant to a Tentative Administrative Measure on Online Travel Operation promulgated on August 20, 2020 by the PRC Ministry of
Culture and Tourism and took effect on October 1, 2020, the operator of online travel business, like us, must provide real and accurate travel services
information without false promotion and advertisement. The operator of online travel platform must verify the identification, license, quality standard,
credit rating, and other information of all travel business operator registered on the platform. The online travel business operator must protect the
personal data privacy of travelers and cannot set unfair trading conditions based on consumption record and preference by abusing data analyzing
technology. The platform operator must also alert the travelers for safety warning, and must take the liability if it fails to perform relevant obligations
requested by such administrative measures.
Furthermore, we provide online consumer finance services incidental to our core businesses. Due to the relatively short history of China’s online
consumer finance industry, the PRC government is still in the process of establishing a comprehensive regulatory framework governing this industry.
The relevant rules and regulations governing this industry are general in nature and yet to be further interpreted or supplemented. As a result, we cannot
assure you that we will be able to obtain all licenses and permits necessary for providing our online consumer finance services. In addition, we may have
to make significant changes to our operations from time to time in order to comply with changing laws, regulations, and policies governing the online
and travel industries in general and many aspects of our business in particular, which may increase our cost of operation or limit our options of service
offering, which in turn may adversely affect our results of operations.
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Our failure to comply with privacy and data protection laws and regulations in various jurisdictions could subject us to sanctions, damages, and
litigation, and could harm our reputation and business.
We collect and process certain personal data of our users, including email addresses, usage data, identification information, user passwords, and
additional information. We also collect and process user billing information, such as credit card numbers, full names, billing addresses, and phone
numbers of our users.
We are subject to the privacy and data protection laws and regulations in various jurisdictions, such as China and European Union. Privacy laws
provide restrictions and guidance in connection with our storage, use, processing, disclosure, transfer, and protection of personal information. We strive
to comply with all applicable laws, regulations, policies relating to privacy and data protection. We are also subject to privacy and data security-related
obligations deriving from our privacy policy and terms of use with our users, and we may be liable to third parties in the event we are deemed to have
wrongfully processed, used, stored, disclosed, or otherwise disposed of personal data.
Data security and protection has become one of the policy focuses of PRC regulators. In December 2012, the Standing Committee of the National
People’s Congress promulgated the Decision to Enhance the Protection of Network Information, or the Information Protection Decision, to enhance the
protection of users’ personal information in electronic form, which provides that internet information service providers must expressly inform their users
of the purpose, manner, and scope of the collection and use of users’ personal information by internet information service providers, publish the internet
information service providers’ standards for their collection and use of users’ personal information, and collect and use users’ personal information only
with the consent of the users and only within the scope of such consent. The Information Protection Decision also mandates that internet information
service providers and their employees keep users’ personal information that they collect strictly confidential, and that they must take such technical and
other measures as are necessary to safeguard the information against disclosure, damages, and loss. Pursuant to the Order for the Protection of
Telecommunication and Internet User Personal Information issued in July 2013 by the PRC Ministry of Industry and Information Technology, or the
MIIT, any collection and use of users’ personal information must be subject to the consent of the users, abide by the principles of legality, rationality,
and necessity and the internet information service providers must expressly inform the users of the purpose, manner, and scope of the collection, and use
of users’ personal information.
We are subject to such requirements as we are operating website and mobile applications and providing certain internet services mainly through
our mobile applications. For example, the Notice on Special Governance of Illegal Collection and Use of Personal Information via Apps issued in
January 2019 restates the requirement of legal collection and usage of personal information, and encourages the app operators to conduct security
certifications. On November 28, 2019, the Measures to Identify Illegal Collection and Usage of Personal Information by Apps was promulgated, and
listed six types of illegal collection and usage of personal information, including “not publishing rules on the collection and usage of personal
information.” Since October 21, 2020, the Legislative Affairs Committee of the National People’s Congress has publicly solicited opinions on the PRC
Personal Information Protection Law (Draft), which sets forth detailed rules on handling personal information and legal responsibilities. As of the date
of this annual report, the draft has not been formally adopted.
European Union traditionally takes a broader view as to what is considered personal information and has imposed greater obligations under their
privacy and data protection laws. In particular, the European Union adopted a new General Data Protection Regulation in April 2016, which became
effective in May 2018. The General Data Protection Regulation results in more stringent requirements for data processors and controllers, including
more fulsome disclosures about the processing of personal information, data retention limits, and deletion requirements, mandatory notification in the
case of a data breach, and elevated standards regarding valid consent in some specific cases of data processing. The General Data Protection Regulation
also includes substantially higher penalties for failure to comply with the requirements. For example, in the event of violations, a fine up to €20 million
or up to 4% of the annual worldwide turnover, whichever is greater, may be imposed. In addition to General Data Protection Regulation, when other
future laws and regulations relating to data privacy in China or other jurisdictions come into effect, the more stringent requirements on privacy user
notifications and data handling will require us to adapt our business and incur additional costs.
Privacy concerns are becoming more widely acknowledged and may cause our users to resist providing the personal data necessary to allow them
to use our platform effectively. We have implemented multiple measures and security protocols to maintain and improve our privacy protection
capability. However, measures we have implemented may not alleviate all potential privacy concerns and threats. In addition, a failure by us or a third-
party contractor providing services to us to comply with applicable privacy and data security laws, regulations, obligations, or our terms of use with our
users, may result in sanctions, statutory or contractual damages or litigation. These violations or proceedings may, among other things, force us to spend
money in defense or settlement, result in the imposition of monetary liability or restrict access to our services from certain territory, which could
adversely affect our reputation and business.
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We have incurred substantial indebtedness and may incur additional indebtedness in the future. We may not be able to generate sufficient cash to
satisfy our outstanding and future debt obligations.
We have incurred substantial indebtedness to execute our business operations and strategies. To the extent that we were to settle or redeem our
convertible notes in cash, our debt obligations would become more substantial.
Our substantial indebtedness could have important consequences to you. For example, it could:
•
•
•
increase our vulnerability to adverse general economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to servicing and repaying our indebtedness, thereby reducing
the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; and
limit, along with the financial and other restrictive covenants of our indebtedness, among other things, our ability to conduct additional
financing activities, or increase the cost of additional financing.
We may from time to time incur additional indebtedness and contingent liabilities. If we incur additional debt, the risks that we face as a result of
our substantial indebtedness and leverage could intensify. For example, since 2018, we entered into asset backed securitization arrangements with third-
party financial institution and set up a securitization vehicle, which issued revolving debt securities to third-party investors. In 2019 and 2020, we also
obtained loan facilities from certain financial institutions. In July 2020, we issued US$500 million in aggregate principal amount of 1.50% exchangeable
senior notes due 2027.
Our ability to generate sufficient cash to satisfy our outstanding and future debt obligations will depend upon our future operating performance,
which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control. As a result,
we may not generate or obtain sufficient cash flow to meet our anticipated operating expenses and to service our debt obligation as they become due.
We may face greater risk of doubtful accounts as our business increases in scale.
We provide credit terms to certain ecosystem partners, and also extend credit to our users by making payments on behalf of them when they book
travel products on our platform. Our accounts receivable and other receivables have increased as our business grows. We cannot assure you that we will
be able to collect payment fully and in a timely manner on our outstanding receivables from our ecosystem partners and users. As a result, we may face
a greater risk of non-payment of our receivables and, as our business grows in scale, we may need to make higher allowance for credit losses. For the
years ended December 31, 2018, 2019 and 2020, we recognized allowance for credit losses of RMB69 million, RMB191 million and RMB700 million
(US$107 million), respectively. The increase in the allowance for credit losses for 2020 compared to 2019 was primarily due to the impact of the
COVID-19 pandemic. Our operating results and financial condition may be materially and adversely affected if we are unable to successfully manage
our receivables.
Our accounting treatment for share-based compensation could continue to significantly reduce our net income.
We have accounted for share-based compensation in accordance with ASC 718 “Compensation — Stock Compensation,” or ASC 718, which
requires a public company to recognize, as an expense, the fair value of share options and other share-based compensation to employees based on the
requisite service period of the share-based awards. We have granted share-based compensation awards, including share options and restricted share
units, to employees, officers and directors to incentivize performance and align their interests with ours. See “Item 6.B. Directors, Senior Management
and Employees— Compensation—Employees’ Share Incentive Plans.” As a result of the grants and potential future grants under our share incentive
plans, we had incurred in the past and expect to continue to incur in future periods significant share-based compensation expenses. The amount of these
expenses is based on the fair value of the share-based awards.
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Our board of directors has the discretion to change terms of any previously issued share options and any such change may significantly increase
the amount of our share-based compensation expenses for the period that the change takes effect as well as those for any future periods. For example, in
December 2019, we completed a one-time modification of share options, pursuant to which each eligible grantee could exchange every four of the share
options that were granted under the 2007 Share Incentive Plan and the Amended and Restated Global Incentive Plan with exercise price exceeding
US$320 per ordinary share for one new option entitling each eligible grantee to purchase one ordinary share at the exercise price of US$0.01 with the
original vesting schedules remaining unchanged. As a result of the modification, the prior options to purchase 835,849 ordinary shares were exchanged
for new options to purchase 209,026 ordinary shares. In addition, with the historic changes and extensions to our share incentive awards, the application
of ASC 718 will continue to have a significant impact on our net income. Further, future changes to various assumptions used to determine the fair value
of awards issued or the amount and type of equity awards granted may also create uncertainty as to the amount of future share-based compensation
expense.
Changes in accounting standards may affect the results of our operations.
We are required to adopt new accounting standards under FASB from time to time. Certain new accounting standards may impose significant
different accounting treatments on certain line items on our consolidated financial statements, which could result in unexpected changes to our results of
operation.
For example, in May 2014, the FASB issued a new accounting standard on the recognition of revenue generated from contracts with users that was
designed to create greater comparability for financial statement users across industries and jurisdictions. The core principle of this new standard is that
an “entity recognizes revenue to depict the transfer of promised goods or services to users in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.” We adopted this new standard, effective from January 1, 2018, and applied the full
retrospective transition approach to all contracts, which means that the financial statements for the year ended and as of December 31, 2018 and 2019
were reported under this new standard and the financial statements for the years ended and as of December 31, 2016 and 2017 were retrospectively
adjusted. The new standard did not change the presentation of our revenues, which continues to be substantially reported on a net basis. However, the
timing of revenue recognition for certain revenue streams is changed under the new standard. In particular, revenue for accommodation reservation
services, which used to be recognized after end-users completed their stays, is now recognized when the reservation becomes non-cancellable. Revenue
for packaged-tour services, which used to be recognized when packaged tours were completed, is now recognized on the departure date of a tour.
On January 1, 2018, we adopted new financial instruments accounting standard ASU No. 2016-01, which requires equity investments to be
measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring
consolidation. The new standard also changes the accounting for investments without a readily determinable fair value and that do not qualify for the
practical expedient to estimate fair value. A policy election can be made for these investments whereby investment will be carried at cost and adjusted in
subsequent periods for any impairment or changes in observable prices of identical or similar investments. With the adoption of the new standard, we
recognized the changes in fair value for all equity investments measured at fair value through profit or loss. For investments in equity securities lacking
of readily determinable fair values, we elected to use the measurement alternative defined as cost, less impairments, adjusted by observable price
changes. The new standard also requires us to reclassify the accumulated unrealized gain or loss of the equity investments measure at fair value that
were previously recognized in other comprehensive income to retained earnings on the date of the adoption.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires that a lessee should recognize the assets and liabilities that
arise from operating leases. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an
accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should
recognize lease expenses for such lease generally on a straight-line basis over the lease term. The new leases standard also provides lessees with a
practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component. If a lessee makes that
accounting policy election, it is required to account for the non-lease components together with the associated lease component as a single lease
component and to provide certain disclosures. Entities were initially required to adopt the new leases standard using a modified retrospective transition
method. Under that transition method, an entity initially applies the new leases standard (subject to specific transition requirements and optional
practical expedients) at the beginning of the earliest period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, which
provides another transition method in addition to the existing transition method by allowing entities to initially apply the new leases standard at the
adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption consistent with
preparers’ requests. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years for public entities. We have adopted this new guidance for the year ended December 31, 2019. The standard had a material impact on
our consolidated balance sheets, but did not have a material impact on our consolidated statements of income or statements of cash flows. The most
significant impact was the recognition of right-of-use assets, or ROU assets, of RMB1.0 billion and lease liabilities of RMB980 million for operating
leases. Other than disclosed, we do not expect the new standard to have a material impact on our remaining consolidated financial statements.
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For further details, see “Item 5. A. Operating and Financial Review and Prospects—Operating Results—Critical Accounting Policies and
Estimates.” As a result of changes in accounting standards, our results of operations may be adversely affected.
Failure to maintain effective internal control over financial reporting could result in errors in our published financial statements, which in turn
could have a material adverse effect on the trading price of our ADSs.
We are subject to the reporting obligations under the U.S. securities laws. As required under Section 404 of the Sarbanes-Oxley Act of 2002, the
SEC has adopted rules requiring public companies to include a report of management on the effectiveness of such companies’ internal control over
financial reporting in its annual report. In addition, an independent registered public accounting firm for a public company must issue an attestation
report on the effectiveness of the company’s internal control over financial reporting. Our management conducted an evaluation of the effectiveness of
our internal control over financial reporting and concluded that our internal control over financial reporting was effective as of December 31, 2020. In
addition, our independent registered public accounting firm attested the effectiveness of our internal control and reported that our internal control over
financial reporting was effective as of December 31, 2020. If we fail to maintain the effectiveness of our internal control over financial reporting, we
may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley
Act. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports. As a result, any failure to
maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements,
which in turn could negatively impact the trading price of our ADSs. Furthermore, we may need to incur additional costs and use additional
management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.
We may need additional capital and we may not be able to obtain it.
We believe that our current cash and cash equivalents, short-term investments, cash flow from operations and proceeds from our financing
activities will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to
changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are
insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional
equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations
and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in
amounts or on terms acceptable to us, if at all.
In addition, the terms of future debt financing could result in more restrictive covenants, which could further restrict our business operations. If we
cannot raise additional funds when we need them, our ability to continue to support our business and to respond to business challenges would be
significantly limited, and our business, results of operations, and financial condition would be materially and adversely affected.
Fluctuation of fair value change of short-term investments we made may affect our results of operations.
Historically, we made short-term investments, representing (i) held-to-maturity investments which are due in one year and stated at amortized
cost; (ii) the investments issued by commercial banks or other financial institutions with a variable interest rate indexed to the performance of
underlying assets within one year; and (iii) foreign currency forward contracts which are short-term. Short-term investments are stated at fair value.
Changes in the fair value are reflected in our consolidated statements of income/(loss) and comprehensive income/(loss). The methodologies that we use
to assess the fair value of the short-term investments involve a significant degree of management judgment and are inherently uncertain. In addition, we
are exposed to credit risks in relation to our short-term investments, which may adversely affect the net changes in their fair value. We cannot assure you
that market conditions will create fair value gains on our short-term investments or we will not incur any fair value losses on our short-term investments
in the future. If we incur such fair value losses, our results of operations, financial condition and prospects may be adversely affected.
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We have limited business insurance coverage in Greater China.
Insurance companies in Greater China offer limited business insurance products and generally do not, to our knowledge, offer business liability
insurance. Business disruption insurance is available to a limited extent in Greater China, but we have determined that the risks of disruption, the cost of
such insurance, and the difficulties associated with acquiring such insurance make it impractical for us to have such insurance. We may not have
sufficient insurance coverage for business liabilities or disruptions, and may need to bear the costs and expenses associated with any such events out of
our own resources.
Risks Relating to Our Corporate Structure
PRC laws and regulations restrict foreign investment in the travel agency and value-added telecommunications businesses, and substantial
uncertainties exist with respect to the application and implementation of PRC laws and regulations.
We are a Cayman Islands incorporated company and a foreign person under PRC law. Due to foreign ownership restrictions in the travel agency
and value-added telecommunications industries, we conduct part of our business through contractual arrangements with our consolidated affiliated
Chinese entities. These entities hold the licenses and approvals that are essential for our business operations.
In the opinion of our PRC legal counsel, Commerce & Finance Law Offices, our current ownership structure, the ownership structure of our
subsidiaries and our consolidated affiliated Chinese entities, and the contractual arrangements among us, our subsidiaries, our consolidated affiliated
Chinese entities and their shareholders, as described in this annual report, are in compliance with existing PRC laws, rules and regulations. There are,
however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Accordingly, we cannot
assure you that PRC government authorities will not ultimately take a view contrary to the opinion of our PRC legal counsel due to the lack of official
interpretation and clear guidance.
If we and our consolidated affiliated Chinese entities are found to be in violation of any existing or future PRC laws or regulations, the relevant
governmental authorities would have broad discretion in dealing with such violation, including, without limitation, levying fines, confiscating our
income or the income of our consolidated affiliated Chinese entities, revoking our business licenses or the business licenses of our consolidated affiliated
Chinese entities, requiring us and our consolidated affiliated Chinese entities to restructure our ownership structure or operations, and requiring us or our
consolidated affiliated Chinese entities to discontinue any portion or all of our value-added telecommunications or travel agency businesses. In
particular, if the PRC government authorities impose penalties that cause us to lose our rights to direct the activities of and receive economic benefits
from our consolidated affiliated Chinese entities, we may lose the ability to consolidate and reflect in our financial statements the operation results of
our consolidated affiliated Chinese entities. Any of these actions could cause significant disruption to our business operations, and may materially and
adversely affect our business, financial condition, and results of operations.
According to the PRC Civil Code that came into effect on January 1, 2021 and replaced the PRC Property Rights Law effective as of October 1,
2007, the effectiveness of the pledges will be denied if the pledges are not registered. Under the equity pledge agreements between our subsidiaries and
the shareholders of our consolidated affiliated Chinese entities, the shareholders of our consolidated affiliated Chinese entities pledged their respective
equity interests in these entities to our subsidiaries. The effectiveness of the pledges upon registration will be recognized by PRC courts if disputes arise
on certain pledged equity interests and that our subsidiaries’ interests as pledgees will prevail over those of third parties. Our equity pledges have been
duly registered with the relevant local branches of the SAMR.
Furthermore, we were aware that a China-based U.S.-listed company announced in 2012 that it was subject to SEC’s investigation, which it
believed was related to the consolidation of its consolidated affiliated Chinese entities. Following the announcement, that issuer’s stock price declined
significantly. Although we are not aware of any actual or threatened investigation, inquiry or other action by SEC, Nasdaq, or any other regulatory
authority with respect to consolidation of our consolidated affiliated Chinese entities, we cannot assure you that we will not be subject to any such
investigation or inquiry in the future. In the event we are subject to any regulatory investigation or inquiry relating to our consolidated affiliated Chinese
entities, including the consolidation of such entities into our financial statements, or any other matters, we may need to spend significant amount of time
and expenses in connection with the investigation or inquiry, our reputation may be harmed regardless of the outcome, and the trading price of our ADS
may materially decline or fluctuate.
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If our consolidated affiliated Chinese entities violate our contractual arrangements with them, our business could be disrupted, our reputation may
be harmed and we may have to resort to litigation to enforce our rights, which may be time-consuming and expensive.
As the PRC government restricts foreign ownership of value-added telecommunications and travel agency businesses in China, we depend on our
consolidated affiliated Chinese entities, in which we have no ownership interest, to conduct part of our business activities through a series of contractual
arrangements, which are intended to provide us with effective control over these entities and allow us to obtain economic benefits from them. Although
we have been advised by our PRC legal counsel, Commerce & Finance Law Offices, that the contractual arrangements as described in this annual report
are valid, binding, and enforceable under current PRC laws, these arrangements are not as effective in providing control as direct ownership of these
businesses. For example, our consolidated affiliated Chinese entities could violate our contractual arrangements with them by, among other things,
failing to pay us for our consulting or other services. In any such event, we would have to rely on the PRC legal system for the enforcement of those
agreements, which could have uncertain results. Any legal proceeding could result in the disruption of our business, damage to our reputation, diversion
of our resources and incurrence of substantial costs. See “—Risks Relating to Doing Business in China—Uncertainties with respect to the PRC legal
system could adversely affect us.”
The principal shareholders of our consolidated affiliated Chinese entities have potential conflict of interest with us, which may adversely affect our
business.
Some of our directors and officers were also the principal shareholders of our consolidated affiliated Chinese entities as of the date of this annual
report. Thus, conflict of interest between their duties to our company and their interests in our consolidated affiliated Chinese entities may arise. We
cannot assure you that when conflict of interest arises, these persons will act entirely in our interests or that the conflict of interest will be resolved in our
favor. In addition, these persons could violate their non-competition obligations under service contracts with us or their legal duties by diverting
business opportunities from us to others, resulting in our loss of corporate opportunities. In any such event, we would have to rely on the PRC legal
system for the enforcement of these agreements, which could have uncertain results. Any legal proceeding could result in the disruption of our business,
diversion of our resources and incurrence of substantial costs. See “—Risks Relating to Doing Business in China— Uncertainties with respect to the
PRC legal system could adversely affect us.”
Our business may be significantly affected by the new PRC Foreign Investment Law.
The new PRC Foreign Investment Law was approved by the PRC National People’s Congress on March 15, 2019 and became effective from
January 1, 2020. The new PRC Foreign Investment Law has repealed the PRC Wholly Foreign-owned Enterprise Law, the PRC Sino-foreign Equity
Joint Venture Law, and the PRC Sino-foreign Cooperative Joint Venture Law. Therefore, establishment and operation of companies in China, including
FIEs, will generally follow the PRC Company Law unless specifically provided for in the new PRC Foreign Investment Law, in which case the
provisions of the new PRC Foreign Investment Law will prevail. In December 2019, the Implementing Regulation of the Foreign Investment Law was
promulgated by the State Council and became effective from January 1, 2020.
The new PRC Foreign Investment Law does not touch upon the relevant concepts and regulatory regimes that were historically suggested for the
regulation of VIE structures, and thus this regulatory topic remains unclear thereunder. Therefore, substantial uncertainties with respect to its
implementation and interpretation exist, and it is also possible that the VIE entities will be deemed as FIEs and be subject to restrictions in the future.
Such restrictions may cause interruptions to our operations and may incur additional compliance cost, which may in turn materially and adversely affect
our business, financial condition, and results of operations.
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Our contractual arrangements with our consolidated affiliated Chinese entities may result in adverse tax consequences to us.
As a result of our corporate structure and the contractual arrangements between us and our consolidated affiliated Chinese entities, we are
effectively subject to the 6% PRC value-added tax, or VAT, on both revenues generated by our consolidated affiliated Chinese entities’ operations in
China and revenues derived from our contractual arrangements with our consolidated affiliated Chinese entities. We might be subject to adverse tax
consequences if the PRC tax authorities were to determine that the contracts between us and our consolidated affiliated Chinese entities were not made
on an arm’s length basis and therefore constitute favorable transfer pricing arrangements. If this occurs, the PRC tax authorities could request that our
consolidated affiliated Chinese entities adjust their taxable income upward for PRC tax purposes. Such an adjustment could adversely affect us by
increasing our consolidated affiliated Chinese entities’ tax expenses without reducing our tax expenses, which could subject our consolidated affiliated
Chinese entities to late payment fees and other penalties for underpayment of taxes, and/or result in the loss of the tax benefits available to our
subsidiaries in China. The EIT Law requires every enterprise in China to submit its annual enterprise income tax return together with a report on
transactions with its affiliates to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified
any related party transactions that are inconsistent with arm’s length principles. As a result, our contractual arrangements with our consolidated affiliated
Chinese entities may result in adverse tax consequences to us.
Our subsidiaries and consolidated affiliated Chinese entities in China are subject to restrictions on paying dividends or making other payments to
us, which may restrict our ability to satisfy our liquidity requirements.
We are a holding company incorporated in the Cayman Islands. We rely on dividends from our subsidiaries in China and consulting and other fees
paid to us by our consolidated affiliated Chinese entities. Under PRC laws and regulations, our subsidiaries and consolidated affiliated Chinese entities
in China are required to set aside at least 10% of their respective after-tax profit each year, if any, to statutory reserve funds unless these reserve funds
have reached 50% of the subsidiaries and consolidated affiliated Chinese entities’ registered capital. These statutory reserve funds are not distributable
as cash dividends and dividends cannot be distributed until any losses from prior fiscal years have been offset. Furthermore, as our subsidiaries and
consolidated affiliated Chinese entities in China incurred debt on their own behalf, some of the instruments governing the debt restrict their ability to
pay dividends or make other payments to us, which may restrict our ability to satisfy our liquidity requirements.
Pursuant to the EIT Law, its implementing rules and a circular of Taxation on Several Preferential Policies on Enterprise Income Tax issued by the
PRC Ministry of Finance, or MOF, and PRC State Taxation Administration, or the STA, in February 2008, the dividends declared out of the profits
earned after January 1, 2008 by an FIE to its immediate offshore holding company are subject to a 10% withholding tax unless such offshore holding
company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement, and certain supplementary
requirements and procedures stipulated by STA for such tax treaty are met and observed. Our subsidiaries in China are considered FIEs and are directly
or indirectly held by our subsidiaries in Hong Kong. According to the currently effective tax treaty between China and Hong Kong, dividends payable
by an FIE in China to a company in Hong Kong that directly holds at least 25% of the equity interests in the FIE will be subject to a withholding tax of
5%.
Under the Notice of the State Taxation Administration on Issues regarding the Implementation of the Dividend Provision in Tax Treaties
promulgated in February 2009, the taxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. These conditions include, but are
not limited to: (i) the taxpayer must be the beneficial owner of the relevant dividends, and (ii) the corporate shareholder to receive dividends from the
PRC subsidiaries must have met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the
STA promulgated the Announcement of the Certain Issues with Respect to the “Beneficial Owner” in Tax Treaties in February 2018, which sets forth
certain detailed factors in determining “beneficial owner” status, and specifically, if an applicant’s business activities do not constitute substantive
business activities, the applicant will not qualify as a “beneficial owner.”
Entitlement to a lower tax rate on dividends according to tax treaties or arrangements between the PRC central government and governments of
other countries or regions is further subject to the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties
promulgated by the STA on October 14, 2019 and became effective from January 1, 2020, which 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. Instead, non-resident enterprises and their
withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the
reduced withholding tax rate, collect and retain relevant materials for reference in accordance with these treaties, and accept supervision and
management from the tax authorities afterwards. As a result, we cannot assure you that we will be entitled to any preferential withholding tax rate under
tax treaties for dividends received from our PRC subsidiaries.
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If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax
consequences to us and our non-PRC shareholders and ADS holders.
Under the EIT Law and its implementation rules, an enterprise established outside of China with its “de facto management body” within China is
considered a PRC resident enterprise and will be subject to enterprise income tax at the rate of 25% on its worldwide income. The “de facto
management body” is defined as the organizational body that effectively exercises overall management and control over production and business
operations, personnel, finance and accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret such a
broad definition. If the PRC tax authorities determine that we should be classified as a PRC resident enterprise for PRC tax purposes, our global income
will be subject to income tax at a uniform rate of 25%, which may have a material adverse effect on our financial condition and results of operations.
Notwithstanding the foregoing provision, the EIT Law also provides that, if a PRC resident enterprise directly invests in another PRC resident
enterprise, the dividends received by the investing PRC resident enterprise from the invested PRC resident enterprise are exempted from income tax,
subject to certain conditions. However, it remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of an offshore
company with indirect ownership interests in PRC resident enterprises through intermediary holding companies.
Moreover, under the EIT Law and its implementation rules, foreign shareholders and ADS holders that are non-PRC resident enterprises may be
subject to a 10% withholding tax upon dividends payable by an entity that is considered as a PRC resident enterprise and gains realized on the sale or
other disposition of ADSs or our shares, if such income is considered as income derived from within China. Any such tax would reduce the returns on
your investment in our shares or ADSs. Furthermore, if we are deemed as a PRC resident enterprise, dividends paid to foreign ADS holders or
shareholders that are non-PRC individuals may be subject to a 20% withholding tax, and gain realized on the sale or disposition of ADSs or ordinary
shares of such foreign ADS holders or shareholders may be subject to 20% withholding tax, if such income is considered as derived from within China.
Any PRC tax liability may be reduced by an applicable tax treaty, but it is unclear whether non-PRC holders of our notes or ADSs would be able
to obtain the benefits of any tax treaties between their country of tax residence and China in the event that we are treated as a PRC resident enterprise.
Any such tax would reduce the returns on your investment in our shares or ADSs.
If we exercise the option to acquire equity ownership in our consolidated affiliated Chinese entities, such ownership transfer requires approval from
or filings with PRC governmental authorities and subject to taxation, which may result in substantial costs to us.
Pursuant to the relevant contractual arrangements, both of our PRC subsidiaries, Ctrip Travel Information and Ctrip Travel Network (or their
respective designees), have their respective exclusive rights to purchase all or any part of the equity interests in the applicable consolidated affiliated
Chinese entities of ours from the respective shareholders of these consolidated affiliated Chinese entities for a price that is the higher of (i) the amount of
capital contribution to such consolidated affiliated Chinese entities, or the consideration paid in exchange for the equity interests in such consolidated
affiliated Chinese entities, or (ii) another minimum price as permitted by the then applicable PRC laws. Such equity transfers may be subject to
approvals from, or filings with, relevant PRC authorities. In addition, the relevant equity transfer prices may be subject to review and adjustment for tax
determination by the relevant tax authorities. Moreover, the shareholders of our consolidated affiliated Chinese entities, under the circumstances of such
equity transfers, will be subject to PRC individual income tax on the difference between the equity transfer prices and the then current registered capital
of the relevant consolidated affiliated Chinese entities. The shareholders of such consolidated affiliated Chinese entities will pay, after deducting such
taxes, the remaining amount to Ctrip Travel Information or Ctrip Travel Network, as appropriate, under the applicable contractual arrangements. The
amount to be received by Ctrip Travel Information and Ctrip Travel Network may also be subject to enterprise income tax. Any of the aforementioned
tax amounts could be substantial. Similar risk is faced by Qunar Software.
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We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.
We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and
exchange of shares in our company by non-PRC resident investors. According to the Notice on Strengthening Administration of Enterprise Income Tax
for Share Transfers by Non-PRC Resident Enterprises issued by STA on December 10, 2009, or STA Circular 698, where a non-PRC resident enterprise
transfers the equity interests in a PRC resident enterprise indirectly through a disposition of equity interests in an offshore holding company (other than a
purchase and sale of shares issued by a PRC resident enterprise in public securities market), or an Indirect Transfer, the non-PRC resident enterprise, as
the seller, may be subject to PRC enterprise income tax of up to 10% of the gains derived from the Indirect Transfer in certain circumstances.
On February 3, 2015, STA issued Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfers by
Non-RPC Resident Enterprises, or STA Notice No. 7, to supersede the tax rules in relation to the tax treatment of the Indirect Transfer, while the other
provisions of STA Circular 698 irrelevant to the Indirect Transfer remain in force. STA Notice No. 7 introduces a new tax regime that is significantly
different from that under a notice issued by STA Circular 698. It extends STA’s tax jurisdiction to capture not only the Indirect Transfer as set forth
under STA Circular 698 but also transactions involving indirect transfer of (i) real properties in China and (ii) assets of an “establishment or place”
situated in China, by a non-PRC resident enterprise through a disposition of equity interests in an offshore company. STA Notice No. 7 also extends the
interpretation with respect to the disposition of equity interests in an offshore company broadly. In addition, STA Notice No. 7 further clarifies how to
assess reasonable commercial purposes and introduces safe harbors applicable to internal group restructurings. However, it also brings challenges to
both offshore transferor and transferee as they are required to make self-assessment on whether an Indirect Transfer or similar transaction should be
subject to PRC tax and whether they should file or withhold any tax payment accordingly. On October 17, 2017, the STA issued a Notice Concerning
Withholding Income Tax of Non-Resident Enterprise, or STA Notice No. 37, which abolishes STA Circular 698 and certain provision of STA Notice 7.
STA Notice No. 37 further reduces the burden of withholding obligator, such as revocation of contract filing requirements and tax liquidation
procedures, strengthens the cooperation of tax authorities in different places, and clarifies the calculation of tax payable and mechanism of foreign
exchange.
There is uncertainty as to the application of STA Notice No. 7 and STA Notice No. 37. In the event that non-PRC resident investors were involved
in our private equity financing transactions and such transactions were determined by the competent tax authorities as lack of reasonable commercial
purposes, we and our non-PRC resident investors may become at risk of being taxed under and STA Notice No. 7 and STA Notice No. 37 and may be
required to expend costly resources to comply with and STA Notice No. 7 and STA Notice No. 37, or to establish a case to be tax exempt under STA
Notice No. 7 and STA Notice No. 37, which may cause us to incur additional costs and may have a negative impact on the value of your investment in
us.
The PRC tax authorities have discretion under STA Notice No. 7 and STA Notice No. 37 to adjust the taxable capital gains based on the difference
between the fair value of the transferred equity interests and the investment cost. We may pursue acquisitions in the future that may involve complex
corporate structures. If we are deemed as a non-PRC resident enterprise under the EIT Law and if the PRC tax authorities adjust the taxable income of
the transactions under STA Notice No. 7 and STA Notice No. 37, our income tax expenses associated with such potential acquisitions will increase,
which may have an adverse effect on our financial condition and results of operations.
Risks Relating to Doing Business in China
Adverse changes in economic and political policies of the PRC government could have a material adverse effect on the overall economic growth of
China, which could adversely affect our business.
Substantially all of our operations are located in China. Accordingly, our business, prospects, financial condition and results of operations 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 amount of government
involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has
implemented measures 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
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 China’s economic growth through allocating resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
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While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among
various sectors of the economy. 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. The growth rate of the Chinese economy has gradually slowed since 2010, and the impact of the
COVID-19 pandemic on the Chinese economy in 2020 was severe. Any prolonged slowdown in the Chinese economy may reduce the demand for our
products and services and materially and adversely affect our business and results of operations.
Inflation in China may disrupt our business and have an adverse effect on our financial condition and results of operations.
The Chinese economy has experienced rapid expansion together with rising rates of inflation. Inflation may erode disposable incomes and
consumer spending, which may have an adverse effect on the Chinese economy and lead to a reduction in business and leisure travel as the travel
industry is highly sensitive to business and personal discretionary spending levels. This in turn could adversely impact our business, financial condition,
and results of operations.
Future movements in exchange rates between U.S. dollars and Renminbi may adversely affect the value of our ADSs.
The conversion of Renminbi into foreign currencies, including U.S. dollars, is largely based on rates set by the People’s Bank of China. Renminbi
has fluctuated against U.S. dollars, at times significantly and unpredictably. The value of Renminbi against U.S. dollars and other currencies is affected
by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. We cannot assure you that
Renminbi will not appreciate or depreciate significantly in value against U.S. dollars in the future. It is difficult to predict how market forces or PRC or
U.S. government policy may impact the exchange rate in the future.
The majority of our revenues and cost are denominated in Renminbi, while a portion of our financial assets, financial liabilities, and our dividend
payments are denominated in U.S. dollars. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. We
may use foreign exchange spot, forward, or other contracts to help hedge our exposure to foreign currency risk where we deem necessary, and may
adopt additional measures in the future to manage such risk. Any significant revaluation of Renminbi or U.S. dollars may adversely affect our cash
flows, earnings and financial position, and the value of, and any dividends payable on, the ADSs. For example, an appreciation of Renminbi against
U.S. dollars would make any new Renminbi-denominated investments or expenditures more costly to us, to the extent that we need to convert U.S.
dollars into Renminbi for such purposes. An appreciation of Renminbi against U.S. dollars would also result in foreign currency translation losses for
financial reporting purposes when we translate our U.S. dollar-denominated financial assets into Renminbi, our reporting currency. Conversely, if we
decide to convert Renminbi into U.S. dollars for the purpose of making payments relating to financial liabilities or making payments for dividends on
our ordinary shares or the ADSs or for other business purposes, appreciation of U.S. dollars against Renminbi would have a negative effect on the U.S.
dollar amount available to us.
Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.
Because the majority of our revenues are denominated in Renminbi, any restrictions on currency exchange may limit our ability to use Renminbi-
denominated revenues to fund our business activities outside China or to make dividend payments in U.S. dollars. The principal PRC regulation
governing foreign currency exchange is the Regulations on Administration of Foreign Exchange, as amended, or the Forex Regulations. Under the
Forex Regulations, Renminbi is freely convertible for trade- and service-related foreign exchange transactions, but not for direct investment, loan or
investment in securities outside China unless prior approval of the State Administration of Foreign Exchange, or SAFE, is obtained. Although the PRC
regulations now allow greater convertibility of Renminbi for current account transactions, significant restrictions remain. For example, foreign exchange
transactions under our subsidiaries’ capital account, including principal payments in respect of foreign currency-denominated obligations, remain
subject to significant foreign exchange controls and the approval of SAFE. These limitations could affect our ability to obtain foreign exchange for
capital expenditures. We cannot be certain that the PRC regulatory authorities will not impose more stringent restrictions on the convertibility of
Renminbi, especially with respect to foreign exchange transactions.
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PRC regulations relating to the establishment of offshore special purpose vehicles by PRC residents and the grant of employee stock options by
overseas-listed companies may subject our PRC resident shareholders to personal liability and limit our ability to inject capital into our PRC
subsidiaries, limit our subsidiaries’ ability to distribute profits to us, or otherwise adversely affect us.
SAFE issued the Circular of the SAFE on Foreign Exchange Administration for Financing and Round-Trip Investments by Domestic Residents
via Overseas Special Purpose Vehicles, or SAFE Circular 75, in October 2005 requiring PRC residents to register with the local SAFE branches before
establishing or controlling any company outside of China for the purpose of capital financing with assets or equity interests in any onshore enterprise.
On July 4, 2014, SAFE issued the Circular of the SAFE on Foreign Exchange Administration of Overseas Investments and Financing and Round-Trip
Investments by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37, which has superseded SAFE Circular 75 and states that (i) a
PRC resident, including a PRC resident natural person or a PRC legal person, must register with the local branch of the SAFE before contributing its
assets or equity interest in domestic enterprises, or offshore assets or interests into a special purpose vehicle, for the purpose of investment and
financing; and (ii) when the special purpose vehicle undergoes changes in basic information, such as changes of its PRC resident natural person
shareholders, name or operating period, or occurrence of a material event, such as change in share capital, transfer or replacement of equity of a PRC
resident natural person, performance of merger or split, the PRC resident must register such change with the local branch of the SAFE in a timely
manner. If any PRC shareholder fails to make the required registration or update the previously filed registration, the PRC subsidiary of that offshore
parent company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer, or liquidation to their
offshore parent company, and the offshore parent company may also be prohibited from injecting additional capital into its PRC subsidiary. Moreover,
failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC laws for evasion of
applicable foreign exchange restrictions.
We have notified holders of our ordinary shares who we know are PRC residents to register with the local SAFE branches as required under the
applicable foreign exchange regulations. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth
therein may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries, limit our
PRC subsidiaries’ ability to distribute profits to our company or otherwise adversely affect our business.
On February 15, 2012, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Administration for Domestic
Individuals Participating in an Employees Share Incentive Plan of an Overseas-Listed Company, or the Share Incentive Rules, which replaced the prior
circular in 2007, named Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in an Employee Stock
Holding Plan or Stock Option Plan of an Overseas-Listed Company. Under the Share Incentive Rules, PRC resident individuals who participate in a
share incentive plan of an overseas publicly listed company are required to register with SAFE and complete certain other procedures. All such
participants need to retain a PRC agent through PRC subsidiaries to register with SAFE and handle foreign exchange matters such as opening accounts,
transferring and settlement of the relevant proceeds. The Share Incentive Rules further require an offshore agent to be designated to handle matters in
connection with the exercise of share options and sale of proceeds for the participants of share incentive plans. We and our PRC employees who have
been granted stock options are subject to the Share Incentive Rules. If we or our PRC optionees fail to comply with these regulations, we or our PRC
optionees may be subject to fines and legal sanctions.
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Uncertainties with respect to the PRC legal system could adversely affect us.
We conduct our business primarily through our wholly-owned subsidiaries incorporated in China. Our subsidiaries are generally subject to laws
and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises, or WFOEs. In
addition, we depend on several consolidated affiliated Chinese entities in China to honor their service agreements with us. Almost all of these
agreements are governed by PRC law and disputes arising out of these agreements are expected to be decided by arbitration in China. The PRC legal
system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and
regulations have significantly enhanced the foreign investments in China. However, since the PRC legal system is still evolving, the interpretations of
many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit
remedies available to us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and
management attention. If we and our consolidated affiliated Chinese entities 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 would have broad discretion in
dealing with such violations, including restructuring. See “—Risks Relating to Our Corporate Structure—PRC laws and regulations restrict foreign
investment in the travel agency and value-added telecommunications businesses, and substantial uncertainties exist with respect to the application and
implementation of PRC laws and regulations” and “Risks Relating to Our Corporate Structure—Our business may be significantly affected by the new
PRC Foreign Investment Law.”
Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.
Among other things, the Regulation on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by
six PRC regulatory agencies in 2006 and amended in 2009, and certain other 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,
including requirements in some instances that the anti-monopoly law enforcement authority be notified in advance of any change-of-control transaction
in which a foreign investor takes control of a PRC domestic enterprise.
Moreover, the PRC Anti-Monopoly Law and Provisions of the State Council on Thresholds for Reporting of Concentrations of Operators require
that transactions which are deemed concentrations and involve parties with specified turnover thresholds (for example, during the previous fiscal year,
(i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a
turnover of more than RMB400 million within China, or (ii) the total turnover within China of all the operators participating in the concentration
exceeded RMB2 billion and at least two of these operators each had a turnover of more than RMB400 million within China) must be cleared by the anti-
monopoly law enforcement authority before they can be completed. On February 7, 2021, the SAMR further issued the Anti-Monopoly Guidelines for
the Internet Platform Economy Sector that aims at specifying some of the circumstances under which an activity of internet platforms may be identified
as monopolistic act as well as setting out merger controlling filing procedures involving variable interest entities. Due to the uncertainties associated
with the evolving legislative activities and varied local implementation practices of anti-monopoly and competition laws and regulations in the China, it
may be costly to adjust some of our business practice in order to comply with these laws, regulations, rules, guidelines and implementations. If we are
found to have violated the PRC Anti-Monopoly Law for failing to file the notification of concentration and request for review, we could be subject to a
fine of up to RMB500,000, and the parts of the transaction causing the prohibited concentration could be ordered to be unwound. Such unwinding could
affect our business and financial results, and harm our reputation. Further, if any of our business cooperation arrangements with Qunar are determined to
have violated the PRC Anti-Monopoly Law, we could be subject to sanctions including an order to cease the relevant activities, confiscation of illegal
gains and fines of 1% to 10% of our sales revenues from the previous year. See “—Risks Relating to Our Business and Industry—Our strategy to
acquire or invest in complementary businesses and assets and establish strategic alliances involves significant risk and uncertainties that may have a
material adverse effect on our business, reputation, financial condition, and results of operations.”
In addition, the Circular of the General Office of the State Council on the Establishment of Security Review System for the Merger and
Acquisition of Domestic Enterprises by Foreign Investors issued on February 3, 2011, and the Rules on Implementation of Security Review System for
the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the PRC Ministry of Commerce, or MOFCOM, that became
effective on September 1, 2011, require acquisitions by foreign investors of PRC companies engaged in military-related or certain other industries that
are crucial to national security be subject to security review before consummation of any such acquisition. In December, 2020, the NDRC and the
MOFCOM further promulgated the Foreign Investment Security Review Measures, which took effect on January 18, 2021. These measures require
direct or indirect investment by foreign investors of PRC companies engaged in military-related or certain other industries be subject to security review
before consummation of any such investment. “Certain other industries” refer to, among others, important transportation services, important culture
products and services, important information technology and internet products and services, and important finance services that are crucial to national
security.
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In order to grow our business, we may pursue potential strategic acquisitions that are complementary to our business and operations. Complying
with the requirements of these regulations to complete such transactions could be time-consuming, and any required approval processes, including
obtaining approval or clearance from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand
our business or maintain our market share.
It may be difficult for overseas regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States or Hong Kong generally are difficult to pursue as a matter of
law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory
investigations or litigations initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the
securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the
securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore,
according to Article 177 of the PRC Securities Law, which became effective in March 2020, no overseas securities regulator is allowed to directly
conduct investigation or evidence collection activities within the PRC territory. While detailed interpretation of or implementation rules under this
Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection
activities within China may further increase the difficulties you face in protecting your interests.
PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds from
the offerings of any securities to make loans or additional capital contributions to our PRC operating subsidiaries.
As an offshore holding company, our ability to make loans or additional capital contributions to our PRC operating subsidiaries is subject to PRC
regulations and approvals and there are restrictions for us to make loans to our consolidated affiliated Chinese entities. These regulations and approvals
may delay or prevent us from using the proceeds we received in the past or will receive in the future from the offerings of securities to make loans or
additional capital contributions to our PRC operating subsidiaries and our consolidated affiliated Chinese entities, and impair our ability to fund and
expand our business which may adversely affect our business, financial condition and result of operations.
For example, on March 30, 2015, SAFE promulgated a Circular on the Reforming of Administrative Methods Regarding the Foreign Exchange
Capital Settlement of Foreign-Invested Companies, or SAFE Circular 19, which became effective on June 1, 2015 and replaced the Circular on the
Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-
Invested Enterprises, or SAFE Circular 142. Previously, pursuant to SAFE Circular 142, the registered capital of an FIE settled in Renminbi converted
from foreign currencies may only be used within the business scope approved by the applicable government authority and may not be used for equity
investments in China, and the FIE may not change how it uses such capital without SAFE’s approval, and may not in any case use such capital to repay
Renminbi loans if they have not used the proceeds of such loans in accordance with SAFE’s approval. Although SAFE Circular 19 restates certain
restrictions on the use of investment capital denominated in foreign currency by FIEs, it specifies that the registered capital of an FIE whose main
business is investment, denominated in foreign currency, can be converted into Renminbi at the discretion of such FIE and can be used for equity
investment in China subject to the invested company’s filing of a reinvestment registration with the relevant local SAFE. On June 9, 2016, SAFE issued
the Circular on Reforming and Regulating the Administrative Policy of the Settlement under Capital Accounts, or SAFE Circular 16, which became
effective on the same date. Although SAFE Circular 16 further extends the reform to cover foreign currency income under capital account, including
capital, foreign debt and proceeds from offshore offering and listing, an FIE’s foreign currency income and such income settled in Renminbi under the
capital account cannot be used directly and indirectly for any purposes out of the FIE’s business scope or in areas prohibited by laws and regulations.
According to the Circular on Further Promoting the Facilitation of Cross-Border Trade and Investment promulgated by SAFE on October 23, 2019, or
SAFE Circular 28, non-investment FIEs are allowed to use their capital for equity investment in China provided that such investment is not in violation
of the currently effective Special Administrative Measures for Foreign Investment Access (Negative List) and the target investment projects are truthful
and compliant with relevant laws and regulations. According to the Circular on Optimizing the Administration of Foreign Exchange to Support the
Development of Foreign-related Business, or SAFE Circular 8, issued by the SAFE on April 10, 2020, eligible enterprises are allowed to make domestic
payments using the income under their capital accounts generated from their capital, foreign debt and overseas listing, without providing materials
evidencing the authenticity in advance, provided that the capital usage is authentic and compliant with the current capital account income usage
management regulations. The concerned bank is required to conduct spot checks in accordance with the relevant requirements. However, the
interpretation and enforcement of SAFE Circular 19, SAFE Circular 16, SAFE Circular 28, and SAFE Circular 8 remained to be subject to uncertainty.
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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 various 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.
We have attempted to comply with the PRC regulations regarding licensing requirements. If the PRC laws and regulations change, our business in
China may be adversely affected. Any lack of requisite approvals, licenses, or permits applicable to our business or any failure to comply with
applicable laws or regulations may materially and adversely affect our business, financial condition, and results of operations.
The PRC government regulates the internet and related industry extensively and these internet-related laws and regulations are relatively new and
evolving. New laws and regulations applicable to internet business and activities may be promulgated, and their interpretation and enforcement involve
significant uncertainties. If these new laws and regulations are promulgated, additional licenses may be required for our online operations. As a result,
under certain circumstances it may be difficult to determine what actions or omissions constitute violations of applicable laws and regulations. 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.
When entering into new businesses, we may encounter additional regulatory uncertainties. For example, at the beginning of 2020, we launched
our live streaming program to promote travel destinations across China with the latest deals on hotels, flights, excursion tickets and other products. On
November 12, 2020, the National Radio and Television Administration promulgated a Notice on Strengthening the Management of Online Show Live
Streaming and E-commerce Live Streaming, which requests live streaming platforms for online shows and e-commerce to be filed with the National
Radio and Television Administration. However, as this notice does not specifically define what live streaming platform for e-commerce is, it is unclear
whether our live streaming program mainly for the promotion of products sold on our own platform is subject to the notice. Based on our consultation
on January 28, 2021 with local counterpart of the National Radio and Television Administration, the competent authority of regulating live streaming
business, the live streaming business that we currently operate on our platform is not subject to filing with the National Radio and Television
Administration, in accordance with this notice. The National Radio and Television Administration is responsible for guiding the development and
publicity of online audio-visual program services, including live streaming businesses, supervising the audio-visual programs transmitted by information
networks and public carriers, reviewing their contents and qualities, and conducting investigation and punishing on illegal online audio-visual program
service. Should the relevant authorities decide that we are subject to this notice, our live streaming business may be subject to more restrictions and will
need to comply with additional requirements, which may increase our compliance costs and adversely impact our business, financial condition, and
results of operations.
On November 13, 2020, the Cyberspace Administration of China promulgated a draft of Administrative Measures on Internet Live Streaming
Marketing Information Content Services for public comment. According to the draft, all entities that conduct internet live streaming marketing services
must be subject to the administration and supervision of the Cyberspace Administration of China. This draft provides firstly the definition of the live
streaming marketing platform, which includes internet live streaming services platform, internet audio-video services platform, and e-commerce
platform, and requests the live streaming marketing platform to be filed with the Cyberspace Administration of China and to report to local counterpart
of the Cyberspace Administration of China for security valuation. Meanwhile, the live streaming marketing platform shall implement real-name
registration system for all live streaming operator on the platform.
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In addition, the PRC government and regulatory authorities have adopted regulations governing content contained within videos, live streaming,
and other information over the internet. Under these regulations, internet content providers are prohibited from posting or displaying content that, among
other things, violates PRC laws and regulations, impairs the national dignity of China or the public interest, or is obscene, superstitious, fraudulent,
violent, or defamatory on the internet. Any failure to comply with these regulations may subject us to liability. We conduct content reviews regularly to
ensure the live streaming content on our platform comply with relevant laws and regulations, but we cannot assure you that our review process will
always guarantee zero violation of the content related laws and regulations. Reports or publicity of content on our platform that are fraudulent, obscene,
superstitious, or otherwise inappropriate may result in negative publicity, harm to our brand or a regulatory response that might have a material and
adverse impact on our business.
The interpretation and application of existing PRC laws, regulations and policies and upcoming new laws, regulations or policies relating to the
internet industry have created substantial uncertainties in the compliance of our business operations. We regularly communicate with the competent
government authorities to stay compliant with applicable laws and regulations. We plan to continue to establish a real-name registration system and
conduct necessary content review as an Internet information services provider in accordance with current laws and regulations. If we fail to obtain or
maintain the proper approvals, licenses, or permits required by applicable laws and regulations, the competent government authorities have the power,
among other things, to levy fines, confiscate our income, revoke our business licenses, require us to discontinue our relevant business or impose
restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material and adverse effect on our results
of operations.
The continued growth of the Chinese internet market depends on the development of telecommunications infrastructure.
Almost all access to the internet in China is state-owned, and telecommunication operations are under MIIT’s administrative control and
regulatory supervision. In addition, the national networks in China connect to the internet through government-controlled international gateways. These
international gateways are the only channels through which a domestic PRC user can connect to the international internet network. We rely on this
infrastructure, primarily China Telecom and China Unicom, to provide data communications capacity. Although the PRC government has announced
plans to aggressively develop the national information infrastructure, we cannot assure you that this infrastructure will be developed, or that it will be
sufficiently upgraded to meet the specifications of the existing or future technological advancement, such as 5G internet. In addition, we will have no
access to alternative networks and services, on a timely basis if at all, in the event of any infrastructure disruption or failure. The internet infrastructure
in China may not support the demands associated with continued growth in internet usage.
In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for
telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet
access fees or other charges to internet users increase, some users may be prevented from accessing the mobile internet and thus cause the growth of
mobile internet users to decelerate. Such deceleration may adversely affect our ability to continue to expand our user base and maintain our user
experience.
Our ADSs may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect auditors who are located in
China. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Additionally, the inability of the PCAOB to conduct inspections deprives our investors with the benefits of such inspections.
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states if the SEC determines
that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive
years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange or in the over the counter
trading market in the U.S.
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Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of
companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which
the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in China, a
jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is currently not
inspected by the PCAOB.
The SEC has not yet proposed rules relating to the implementation of the HFCAA. There could be additional regulatory or legislative
requirements or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s
Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese
Companies to the then President of the United States. This report recommended the SEC implement five recommendations to address companies from
jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were
implemented with the enactment of the HFCAA. However, some of the recommendations were more stringent than the HFCAA. For example, if a
company was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on
January 1, 2022.
The SEC has announced that the SEC staff is preparing a consolidated proposal for the rules regarding the implementation of the HFCAA and to
address the recommendations in the PWG report. It is unclear when the SEC will complete its rulemaking and when such rules will become effective
and what, if any, of the PWG recommendations will be adopted. The implications of this possible regulation in addition the requirements of the HFCAA
are uncertain. Such uncertainty could cause the market price of our ADSs to be materially and adversely affected, and our securities could be delisted or
prohibited from being traded “over-the-counter” earlier than would be required by the HFCAA. If our securities are unable to be listed on another
securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk
and uncertainty associated with a potential delisting would have a negative impact on the price of our ADSs.
The PCAOB’s inability to conduct inspections in China prevents it from fully evaluating the audits and quality control procedures of our
independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived of the benefits of such PCAOB
inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our
independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject
to the PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported
financial information and the quality of our financial statements.
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In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and
the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents
relevant to investigations undertaken by the PCAOB in the PRC or by the CSRC or the PRC Ministry of Finance in the United States. The PCAOB
continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered
with the PCAOB and audit Chinese companies that trade on U.S. exchanges.
Proceedings instituted by SEC against the PRC affiliates of the Big Four accounting firms, including our independent registered public accounting
firm, could result in our financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of
1934, as amended.
Starting in 2011, the PRC affiliates of the Big Four accounting firms, including our independent registered public accounting firm, were affected
by a conflict between U.S. and PRC law. Specifically, for certain U.S.-listed companies operating and audited in mainland China, the SEC and the
PCAOB sought to obtain from the PRC firms access to their audit work paper and other related documents. The firms were, however, advised and
directed that under PRC law, they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to
such papers in China had to be channeled through the CSRC.
In December 2012, SEC brought administrative proceedings against the Big Four accounting firms, including our independent registered public
accounting firm in China, alleging that they had refused to produce audit work papers and other documents related to certain other China-based
companies under SEC’s investigation for potential accounting fraud. On January 22, 2014, an initial administrative law decision, or Initial Decision, was
issued, censuring these accounting firms and suspending four of the five firms from practicing before SEC for a period of six months. The accounting
firms filed a Petition for Review of the Initial Decision to SEC. On February 6, 2015, the Big Four China-based accounting firms each agreed to a
censure and to pay a fine to SEC to settle the dispute and avoid suspension of their ability to practice before SEC and audit U.S.-listed companies. The
settlement required the firms to follow detailed procedures and to seek to provide SEC with access to PRC firms’ audit documents via the CSRC. If
future document productions fail to meet specified criteria, during a period of four years starting from the settlement date, the SEC retained authority to
impose a variety of additional remedial measures on the firms depending on the nature of the failure.
While we cannot predict if SEC will further review the four China-based accounting firms’ compliance with specified criteria or if the results of
such a review would result in SEC imposing penalties such as suspensions or restarting the administrative proceedings, if the accounting firms are
subject to additional remedial measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A
determination that we have not timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of our ADSs
from Nasdaq or the termination of the registration of our ADSs under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or both,
which would substantially reduce or effectively terminate the trading of our ADSs in the United States.
Certain of our leasehold interests in leased properties have not been registered with the relevant PRC government authorities as required by PRC
law, which may expose us to potential fines.
Certain of our leasehold interests in leased properties have not been registered with the relevant PRC government authorities as required by PRC
law, which may expose us to potential fines if we fail to remediate after receiving any notice from the relevant PRC government authorities. In case of
failure to register or file a lease, the parties to the unregistered lease may be ordered to make rectifications (which would involve registering such leases
with the relevant authority) before being subject to penalties. The penalty ranges from RMB1,000 to RMB10,000 for each unregistered lease, at the
discretion of the relevant authority. We are unable to control whether and when the applicable lessors will complete or cooperate with us to complete the
registration in a timely manner. In the event that a fine is imposed on both the lessor and lessee, and if we are unable to recover from the lessor any fine
paid by us, such fine will be borne by us.
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General Risks Relating to Our Ordinary Shares and ADSs
The trading price of our ADSs has been and is likely to continue to be volatile, which could result in substantial losses to holders of our ADSs.
The trading price of our ADSs has been and is likely to continue to be volatile and could fluctuate widely in response to a variety of factors, many
of which are beyond our control. For example, the closing trading prices of our ADSs on the Nasdaq have ranged from US$21.6 to US$38.9 per ADS in
2020. In addition, the performance and fluctuation of the market prices of other companies with business operations located mainly in China, especially
internet and technology companies, that have listed their securities in Hong Kong and/or the United States may affect the overall investor attitude
towards Chinese public companies. The securities of some of these companies have experienced and may continue to experience significant volatility,
resulting from, among other things, underperformance and deteriorating financial results, negative news or perceptions about inadequate corporate
governance practices, and fraudulent behaviors of such companies.
Consequently, the trading performance of our ADSs may be adversely and materially affected, regardless of our actual operation performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our operation,
including the followings:
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the COVID-19 pandemic and its impact on the travel industry;
actual or anticipated fluctuations in our quarterly operating results and variations in our results of operations that are not in line with
market or research analyst expectations or changes in financial estimates by securities research analysts;
conditions in the internet or travel industries;
announcements of studies and reports relating to the quality of our product and service offerings or those of our competitors;
changes in the economic performance or market valuations of other internet or travel companies or other companies that primarily operate
in China;
changes in major business terms between our ecosystem partners and us;
announcements made by us or our competitors of new features or functionalities or other product and service offerings, investments,
acquisitions, strategic relationships, joint ventures, or capital commitments;
press and other reports, whether or not true, about our business, our directors, senior management, or other key employees, including
negative reports published by short sellers, regardless of their veracity or materiality to us;
litigation and regulatory allegations or proceedings that involve us and our directors;
additions to or departures of our management;
political or market instability or disruptions, and actual or perceived social unrest in the markets where we operate;
fluctuations of exchange rates among the Renminbi, the Hong Kong dollar and the U.S. dollar;
sales or perceived potential sales or other dispositions of existing or additional shares and/ or ADSs or other equity or equity-linked
securities;
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any actual or alleged illegal acts of our directors, senior management, or other key employees;
any share repurchase program;
regulatory developments affecting us or our industry, users, licensors and other ecosystem partners; and
market and volume fluctuations in the stock market in general.
In addition, the stock market in general experiences price and volume fluctuations that are often unrelated or disproportionate to the operating
performance of companies like us, such as the large decline in share prices in the United States in early 2020. These market and industry fluctuations
may significantly affect the trading price of our ADSs. In the past, following periods of instability in the market price of a company’s securities,
shareholders have often instituted securities class action suits against that company. We may be the target of this type of litigation in the future.
Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, and, if adversely
determined, could materially and adversely affect our business, financial condition, and results of operations.
Substantial future sales or perceived potential sales of ordinary shares, ADSs or other equity securities in the public market could lower the market
price for the ADSs and adversely impact the price of the ADSs.
In the future, we may sell additional ordinary shares, ADSs or other equity securities to raise capital, and our existing shareholders could sell
substantial amounts of the ADSs, including those issued upon the exercise of outstanding options, in the public market. We cannot predict the size of
such future issuance or the effect, if any, that they may have on the market price for the ADSs. The issuance and sale of a substantial amounts of
ordinary shares, ADSs, or other equity securities, or the perception that such issuances and sales may occur, could adversely affect the market price of
our listed securities and impair our ability to raise capital through the sale of additional equity securities.
Provisions of our convertible notes could discourage an acquisition of us by a third party.
As of December 31, 2020, the aggregate principal amount of our outstanding convertible notes was US$1.1 billion. Certain provisions of our
convertible notes could make it more difficult or more expensive for a third party to acquire us. The indentures for these convertible notes define a
“fundamental change” to include, among other things: (i) any person or group gaining control of our company; (ii) our company merging with or into
another company or disposing of substantially all of its assets; (iii) any recapitalization, reclassification or change of our ordinary shares or the ADSs as
a result of which these securities would be converted into, or exchanged for, stock, other securities, other property or assets; (iv) the adoption of any plan
relating to the dissolution or liquidation of our company; or (v) our ADSs ceasing to be listed on a major U.S. national securities exchange in certain
circumstances, subject to certain exceptions where the applicable consideration comprises U.S.-listed common equity or ADSs. Upon the occurrence of
a fundamental change, holders of these notes will have the right, at their option, to require us to repurchase all of their notes or any portion of the
principal amount of such notes in integral multiples of US$1,000. In the event of a fundamental change, we may also be required to issue additional
ADSs upon conversion of our convertible notes.
As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance
matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders
than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards.
As a Cayman Islands company listed on the Nasdaq, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules
permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the
Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. As we have chosen, or
may from time to time to choose, to follow home country practice exemptions with respect to certain corporate matters such as the requirement of
majority independent directors on our board of directors, our shareholders may be afforded less protection than they otherwise would under the Nasdaq
corporate governance listing standards applicable to U.S. domestic issuers. See “Item 16G. Corporate Governance.”
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We are a foreign private issuer within the meaning of the rules under the U.S. 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 U.S. 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 U.S. Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;
the sections of the U.S. Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered
under the U.S. Exchange Act;
the sections of the U.S. 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
the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our
results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of Nasdaq. 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 timely 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 that would be made available to you were you investing in a U.S. domestic issuer.
You may face difficulties in protecting your interests, and our ability to protect our rights through the U.S. federal courts may be limited, because we
are incorporated under Cayman Islands law, and because we conduct the majority of our operations in China and because the majority of our
directors and officers reside outside of the United States.
We are incorporated in the Cayman Islands, and we conduct the majority of our operations in China through our wholly-owned subsidiaries and
several consolidated affiliated Chinese entities in China. Most of our directors and officers reside outside of the United States and most of the assets of
those persons are located outside of the United States. As a result, it may be difficult for you to effect service of process within the United States upon
these persons, or to bring an action against us or against these individuals in the Cayman Islands or in China in the event you believe that your rights
have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and
China may render you unable to enforce a judgement against our assets or the asses 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, at common law, recognize and enforce a
foreign money judgment of a foreign court of competent jurisdiction without any re-examination of the merits of the underlying dispute based on the
principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the liquidated sum for which such
judgment has been given, provided such judgment (i) is final and conclusive, (ii) is not in respect of taxes, a fine or a penalty, and (iii) was not obtained
in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the
Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law
if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. A
Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
Our corporate affairs are governed by our second amended and restated memorandum and articles of association and by the Companies Act of the
Cayman Islands, or the Companies Act, and the 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 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 in a court in the Cayman Islands. The rights of our shareholders and
the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in
some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States
or Hong Kong. In addition, shareholders in Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal
courts.
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As a result, our public shareholders may have more difficulties in protecting their interests in the face of actions by our management, directors or
controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct how
the ordinary shares represented by your ADSs are voted.
As a holder of ADSs, you will not have any right to attend general meetings of our shareholders or to cast any votes directly at such meetings. You
will only be able to exercise the voting rights that attach to the underlying ordinary shares represented by your ADSs indirectly by giving voting
instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving
voting instructions to the depositary, as the registered holder of the underlying ordinary shares which are represented by your ADSs. Upon receipt of
your voting instructions, the depositary will endeavor to vote the underlying ordinary shares in accordance with your instructions. You will not be able
to directly exercise any right to vote with respect to the underlying shares unless you withdraw the shares and become the registered holder of such
shares prior to the record date for the general meeting. Under our memorandum and articles of association, the minimum notice period required to be
given by our company to our registered shareholders for convening a general meeting is seven days. When a general meeting is convened, you may not
receive sufficient advance notice to enable you to withdraw the underlying shares represented by your ADSs and become the registered holder of such
shares prior to the record date for the general meeting to allow you to attend the general meeting and to vote directly with respect to any specific matter
or resolution that is to be considered and voted upon at the general meeting. In addition, under our memorandum and articles of association, for the
purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members
and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you
from withdrawing the underlying shares which are represented by your ADSs and becoming the registered holder of such shares prior to the record date,
so that you would not be able to attend the general meeting or to vote directly. Where any matter is to be put to a vote at a general meeting, the
depositary will endeavor to 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 ensure that you can instruct the depositary to vote the underlying shares that are represented by your ADSs. 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 direct the voting of the underlying shares that are represented by your ADSs and there may
be nothing you can do if the shares underlying your ADSs are not voted as you requested.
Under our deposit agreement, the depositary will give us a discretionary proxy to vote the ordinary shares underlying your ADSs at shareholders’
meetings if you do not vote, unless we have instructed the depositary that we do not wish a discretionary proxy to be given or any of the other situations
specified under the deposit agreement takes place. The effect of this discretionary proxy is that you cannot prevent ordinary shares underlying your
ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our
company. Holders of our ordinary shares are not subject to this discretionary proxy.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
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 the rights and the securities to which the rights relate under the Securities Act of 1933, as
amended, or the Securities Act, or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank
will not make these rights available to you unless the distribution to ADS holders of both the rights and any related securities 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. Moreover, we may not be able to establish an
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.
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You may not receive distributions on ordinary shares or any value for them if it is illegal or impractical to make them available to you.
The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited
securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent.
However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We
have no obligation to register ADSs, ordinary shares, rights or other securities under U.S. securities laws. 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 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 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 thinks 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.
Provisions of our rights agreement could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our
shareholders.
In November 2007, we adopted a shareholder rights plan pursuant to a rights agreement, which was subsequently amended. The shareholder rights
plan is accounted as dividend in our financial statements. Although the rights plan will not prevent a takeover, it is intended to encourage anyone
seeking to acquire our company to negotiate with our board of directors prior to attempting a takeover by potentially significantly diluting an acquirer’s
ownership interest in our outstanding shares. As the shareholder rights plan generally allows shareholders, except for the acquirer who triggers the
exercise of the rights, to purchase additional shares at significantly discounted market price, the potential dilution effect is dependent on the number of
shares purchased by the acquirer and other factors related to the acquisition, and may not be estimated at this time. In addition, the existence of the rights
plan may also discourage transactions that otherwise could involve payment of a premium over prevailing market prices for the ADSs.
There can be no assurance that we will not be classified as a passive foreign investment company, or PFIC, which may result in adverse U.S. federal
income tax consequences for U.S. holders of the ADSs or ordinary shares.
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year, if either
(i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined
on the basis of a quarterly average) during such year produce or are held for the production of passive income. 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 company’s unbooked intangibles associated with active business activity are taken into
account as a non-passive asset.
Based on our income and assets, and the value of our ADSs, we do not believe that we were classified as a PFIC for the taxable year ending
December 31, 2020 and we do not expect to be a PFIC for the foreseeable future. Although we do not anticipate becoming a PFIC, changes in the nature
of our income or assets or the value of our ADSs may cause us to become a PFIC for the current or any subsequent taxable year. Recent fluctuations in
the market price of our ADSs or ordinary shares increased our risk of becoming a PFIC. The market price of the ADSs and ordinary shares may
continue to fluctuate considerably; consequently, we cannot assure you of our PFIC status for any taxable year. Under circumstances where revenues
from activities that produce passive income significantly increase relative to our revenues from activities that produce non-passive income, or where we
determine not to expend significant amounts of cash for working capital or other purposes, our risk of becoming classified as a PFIC may substantially
increase.
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If we were treated as a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10.E. Additional Information — Taxation —
U.S. Federal Income Tax Considerations”) held our ADSs or ordinary shares, certain adverse U.S. federal income tax consequences could apply to such
U.S. Holder. For a more detailed discussion of U.S. federal income tax considerations to U.S. Holders if we are or become classified as a PFIC, see
“Item 10.E. Additional Information — Taxation — U.S. Federal Income Tax Considerations.”
ITEM 4.
INFORMATION ON THE COMPANY
A. History and Development of the Company
We commenced our business in June 1999. In March 2000, we established an exempted company with limited liability under the Companies Act
in the Cayman Islands, Ctrip.com International, Ltd. as our new holding company. In October 2019, we changed our company name to “Trip.com Group
Limited.” Since our inception, we have conducted the majority of our operations in China and expanded our operations overseas in 2009. As of
December 31, 2020, we mainly operated our business through the following significant subsidiaries:
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C-Travel International Limited;
Ctrip.com (Hong Kong) Limited;
Ctrip Computer Technology (Shanghai) Co., Ltd., or Ctrip Computer Technology;
Ctrip Travel Information Technology (Shanghai) Co., Ltd., or Ctrip Travel Information;
Ctrip Travel Network Technology (Shanghai) Co., Ltd., or Ctrip Travel Network;
Wancheng (Shanghai) Travel Service Co., Ltd., or Wancheng;
Shanghai Hecheng International Travel Agency Co., Ltd., or Hecheng;
Skyscanner Holdings Limited, or Skyscanner;
Shanghai Ctrip International Travel Agency Co., Ltd. (formerly known as Shanghai Ctrip Charming International Travel Agency
Co., Ltd.), or Shanghai Ctrip;
Chengdu Ctrip International Travel Agency Co., Ltd., or Chengdu Ctrip International; and
Chengdu Ctrip Information Technology Co., Ltd., or Chengdu Information.
After our share exchange transaction with Baidu in October 2015, we obtained approximately 45% of the aggregate voting interest of Qunar. In
December 2015, we issued ordinary shares represented by ADSs to certain special purpose vehicles holding shares solely for the benefit of certain
Qunar employees and, as consideration, we received class B ordinary shares of Qunar and directly injected these shares to a third-party investment entity
dedicated to investing in business in China. From accounting perspective, we started to consolidate Qunar’s financial statements from December 31,
2015. Therefore, Qunar Cayman Islands Limited, the Cayman Islands holding company of Qunar, and its wholly-owned subsidiary, Beijing Qunar
Software Technology Co., Ltd., or Qunar Software, may also be deemed as our significant subsidiary from accounting perspective, although Qunar
continues to operate its businesses independently.
We also conduct part of our business in China primarily through the following significant consolidated affiliated Chinese entities and certain of
their subsidiaries:
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Shanghai Ctrip Commerce Co., Ltd., or Ctrip Commerce, which holds a value-added telecommunications business license;
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Chengdu Ctrip Travel Agency Co., Ltd, or Chengdu Ctrip, which holds a domestic travel agency license; and
Shanghai Huacheng Southwest International Travel Agency Co., Ltd. (formerly known as Shanghai Huacheng Southwest Travel Agency
Co., Ltd.), or Shanghai Huacheng, which holds a domestic travel agency license.
In addition, after we started to consolidate the financial statements of Qunar from December 31, 2015, Beijing Qu Na Information Technology
Co., Ltd., or Qunar Beijing, which holds the licenses, approvals and key assets such as mobile application and website that are essential to the business
operations of Qunar, may be deemed as our significant consolidated affiliated Chinese entity from accounting perspective, although Qunar continues to
operate its businesses independently.
From time to time, we have selectively acquired or invested in businesses that complement our existing business, and will continue to do so in the
future to expand and develop our business. See “Item 4.B. Information on the Company — Business Overview — Strategic Investments and
Acquisitions” for material strategic investments and acquisitions over the past two years. Other than the material acquisitions or investments disclosed
under “Item 4.B. Information on the Company — Business Overview — Strategic Investments and Acquisitions” or elsewhere in this annual report on
Form 20-F, no acquisitions or investments was material to our businesses or financial results at the time we made the acquisition or investment.
In July 2019, we entered into a facility agreement as a borrower with certain financial institutions for up to US$2.0 billion equivalent transferable
term loan facility with a greenshoe option of up to US$500 million. The facilities have a 3-year tenor. The proceeds borrowed under such facilities may
be used for our general working capital requirements, including repayment of any existing financial indebtedness.
In September 2019, we completed put right offer relating to the US$975 million in aggregate principal amount of 1.25% convertible senior notes
due 2022 (taking into account of the fully exercised over-allotment option), or the 2022 Notes. US$924 million aggregate principal amount of the 2022
Notes were validly surrendered and not withdrawn prior to the expiration of the put right offer. The aggregate purchase price of these 2022 Notes was
US$924 million.
In October 2019, we completed a secondary offering of an aggregate of 36,000,000 ADSs, which included the exercise in full by the underwriters
of their option to purchase up to 4,695,648 additional ADSs to cover over-allotment, by our shareholder Baidu Holdings Limited at US$28.00 per ADS.
We did not issue or sell any ADSs in the offering or receive any proceeds from the sale of the ADSs by the selling shareholder.
In April 2020, we entered into a facility agreement as a borrower with certain financial institutions for up to US$1.0 billion transferrable term and
revolving loan facility with an incremental facility of up to US$500 million. The facilities have a 3-year tranche and a 5-year tranche. The proceeds
borrowed under the facilities may be used for our general working capital requirements, including repayment of any existing financial indebtedness.
In July 2020, we exercised our put right option relating to the US$400 million in aggregate principal amount of 1.99% convertible senior notes
due 2025, or the 2025 Notes, at an aggregate purchase price of US$395 million.
In July 2020, our US$700 million in aggregate principal amount of 1.00% convertible senior notes due 2020, or the 2020 Notes, were redeemed in
cash. The aggregate purchase price of the 2020 Notes was US$700 million.
In July 2020, we issued US$500 million in aggregate principal amount of 1.50% exchangeable senior notes due 2027, or the 2020 Exchangeable
Notes. The 2020 Exchangeable Notes are exchangeable, at the option of the holders and subject to certain conditions, into cash, ADSs of Huazhu Group
Limited (Nasdaq: HTHT), or a combination thereof, at our election subject to certain conditions. The initial exchange rate of the 2020 Exchangeable
Notes is 24.78 Huazhu ADSs per US$1,000 principal amount of the notes. The 2020 Exchangeable Notes bear interest at a rate of 1.50% per year,
payable semiannually beginning on January 1, 2021.
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Effective December 1, 2015, we changed our ADS to ordinary share ratio from four ADS representing one ordinary share to eight ADSs
representing one ordinary share. Unless otherwise indicated, ADSs and per ADS amount in this annual report have been retroactively adjusted to reflect
the changes in ratio for all periods presented.
Our principal executive offices are located at 968 Jin Zhong Road, Shanghai 200335, People’s Republic of China, and our telephone number is
+86 (21) 3406-4880. Our agent for service of process in the United States is CT Corporation System. Our principal website address is www.ctrip.com.
The information on our websites should not be deemed to be part of this annual report. SEC also maintains a website at www.sec.gov that contains
reports, proxy and information statements, and other information regarding registrants that make electronic filings with SEC using its EDGAR system.
B. Business Overview
We are a leading one-stop travel platform globally, integrating a comprehensive suite of travel products and services and differentiated travel
content. We are the go-to destination for travelers in China, and increasingly for travelers around the world, to explore travel and get inspired, to make
informed and cost-effective travel bookings, and to enjoy hassle-free, on-the-go support and share travel experience. Users come to our platform for any
type of trip, from in-destination activities, weekend getaways, and short-haul trips, to cross-border vacations and business trips. Our product and service
portfolio covers offerings that appeal to both our domestic users and our growing global user base. Founded in 1999, we now operate the most well-
known travel brands in China, and have solidified our leadership over the past two decades.
Our Platform
Our one-stop travel platform connects our users and our ecosystem partners. Our platform aggregates our product and service offerings, reviews
and other content shared by our users based on their real travel experiences, and original content from our ecosystem partners to enable leisure and
business travelers to have easy access to enjoyable travel experiences and make informed and cost-effective bookings. Our platform has attracted
ecosystem partners across multiple sectors, including accommodation reservation, transportation ticketing, packaged tours, and in-destination activities.
In addition, since 2018, we have been rolling out content sharing features on our platform, which allow users to discover, explore, and share travel-
related content featuring destination reviews and travel experiences and tips, thereby further enriching the ecosystem surrounding our platform.
Touchpoints for Users
Online Channels Our online channels consist of our mobile applications, other mobile access channels, and websites. Our online reservation and
fulfillment infrastructure enables our users to explore, search, reserve, and purchase travel products and other value-added services through our online
channels in China, and have continued to expand globally. For the year ended December 31, 2020, over 90% of our total transaction orders were
executed through our mobile channels. We maintain our main sites of Ctrip and Qunar in China, and over time, we have established localized sites for
users outside China. As of December 31, 2020, our products and services through Trip.com were available in 20 languages and 31 local currencies and
local sites, and our products and services through Skyscanner were available in over 30 languages and 52 countries and regions globally.
We offer personalized home pages based on user profiles or past transactions and display travel products and services based on geolocation and
other travel insights. While placing an order, users are prompted with options to customize their trips with packaged deals or additional value-added
services for their convenience, such as travel insurance, car rental, or hotel deals. All products and services are shown with full price transparency. Our
itinerary management tools enable users to review and manage their orders and itineraries. We encourage users to submit ratings, reviews, and
recommendations to our platforms during their trips and after they return from their trips.
Offline Channels In addition to our seven customer service centers located in China and abroad, we are expanding our offline presence to open up
offline stores with our business partners to serve our users who prefer an in-person experience. In our offline stores, we provide users with one-stop
services, such as travel consultation services and other local support and assistance. In addition, our offline stores are expanding to lower-tier cities in
China to cover user base with different purchase and consumption habits, experiences, and needs. As of December 31, 2020, we had approximately
6,000 offline stores across over 300 cities in China.
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Open Platform for Ecosystem Partners
We adopted an open platform business model to attract and facilitate customized travel offerings by ecosystem partners covering various sectors in
the travel vertical. Our open platform strategy allows ecosystem partners to join our open platform and directly post their own product and service
offerings on our platform alongside products and services that are negotiated with business partners and offered by us.
Our ecosystem partner base includes hotels and other accommodation providers, airlines and other air ticket partners, train ticket partners, car
rental companies, bus operators, ferry carriers, other travel agencies from whom we source travel products and services, and value-added service
partners. We also opened up our platform to international partners, search engines, e-commerce platforms, and other channels to expand their business
opportunities and increase the offerings available to our users. As of December 31, 2020, our open platform provided over 1.2 million global
accommodation listings, offered flights from over 480 airlines, and had a network of over 30,000 other ecosystem partners.
We carry out ecosystem partner selection process to ensure the quality of product and service offerings to our users. When determining whether to
accept a prospective ecosystem partner to our open platform, we take into account various factors, including reputation, industry expertise and
know-how, price competitiveness, and track record of delivering high-quality products and services. We also have streamlined the contracting process
for ecosystem partners by using an e-contract system on our open platform. We set high service standards and manage product and service quality of our
ecosystem partners through screening and ratings. We monitor our ecosystem partners’ performance based on user feedback. Ecosystem partners with
good performance will be rewarded, while those with negative reviews will be flagged for improvement.
Our Products and Services
We offer accommodation reservation, transportation ticketing, packaged tours, and corporate travel management services, as well as other travel-
related services to meet the various booking and traveling needs of both leisure and business travelers through our travel platform. We began offering
accommodation reservation and transportation ticketing services in October 1999. Over the past two decades, we have been driving the transformation
of travel experience and the adoption of online- and mobile- based travel booking solutions for leisure and business travelers in China and globally. We
capture evolving user preferences and provide travel content as well as travel products and services to make travel effortlessly enjoyable. In addition, we
offer various other products and services, including packaged-tour and in-destination activity products and services, corporate travel management
services, and other travel-related services, such as car services, travel-related financing and insurance, and visa services to meet the various booking and
traveling needs of both leisure and business travelers. Our users also have access to both user-generated and professionally-generated content through
personalized content feeds and our search tools.
Accommodation Reservation
Users can search, compare, and book accommodations on our platforms based on their destination and detailed stay preferences, and may further
filter and sort search results by price range, star category, location, brand, and amenities. We also augment our accommodation reservation offerings
with traveler ratings, reviews, recommendations, and tour guides.
We act as an agent in substantially all of our hotel-related transactions. We generate substantially all of our accommodation reservation revenue
through commissions from our hotel reservation partners through our platform. We recognize revenues when the reservation becomes non-cancellable,
which is the point considered when we complete our performance obligation in accommodation reservation services. Contracts with certain hotel
reservation partners contain incentive commissions that are typically subject to specific performance targets. We generally receive incentive
commissions from hotels through monthly arrangements based on performance targets of accommodation reservations where our users have completed
their stay.
We contract with hotel partners for rooms under two agency models, the “guaranteed allotment” model and the “on-request” model. Under the
“guaranteed allotment” model, a hotel guarantees us a specified number of available rooms every day, allowing us to provide instant confirmations on
such rooms to our users before notifying the hotel. For the year ended December 31, 2020, hotel reservations in which we have a guaranteed allotment
arrangement accounted for a significant portion of our total hotel reservations in terms of GMV. With the remaining hotel partners, we book rooms on an
“on-request” basis, meaning our ability to secure hotel rooms for our users is subject to room availability at the time of booking.
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Transportation Ticketing
Users can search and book transportation tickets via our online platform and customer service centers. Our search functions allow users to narrow
search results by specifying preferences, such as time and mode of transportation, and we leverage our data analytics capability to help them book
tickets that best suit their travel needs. As of December 31, 2020, our transportation ticketing network covered over 200 countries and regions.
Air Tickets
We sell air tickets as an agent for substantially all domestic PRC airlines and major international airlines operating flights. As of December 31,
2020, we offered flights from over 480 global airlines, covering over 2,600 airports in over 200 countries and regions. Our air ticket booking engines
source real-time availability and pricing information from “direct connects” to airlines’ booking systems and the global distribution system (GDS), a
computerized network system that has real-time link to our ecosystem partners’ inventory.
In addition to selling air tickets, we also offer various options and services to help users travel with ease. Powered by our route planning
algorithms and travel supply, users can customize their trips by combining two or more of our core travel products, such as air tickets and hotels, which
are typically offered as a package at discounted rates. We also provide travel insurance products, such as flight delay insurance, air accident insurance,
and baggage loss coverage, and various ancillary value-added services built around users’ air travel needs, such as air-ticket delivery, online check-in
and seat selection, express security screening, real-time flight status tracker, and airport VIP lounge services.
Other Tickets
Other tickets covered by our transportation ticketing service include train, long-distance bus, and ferry tickets. In connection with such ticketing
services, we also offer various other ancillary travel products and services that are designed to streamline the ticketing process.
Packaged Tours and In-Destination Activities
We offer independent leisure travelers bundled packaged-tour products as well as in-destination activity products and services, catering to our
users’ evolving demands.
Packaged Tours
We offer our users bundled packaged-tour products, including group tours, semi-group tours, customized tours, and packaged tours with different
transportation arrangements, such as by air, cruise, bus, and car rental, covering domestic and international destinations. For example, we focus on
securing diverse boutique travel products domestically, such as combinations of themed hotels and dining. We provide integrated transportation and
accommodation services and offer a variety of value-added services including transportation at destinations, attraction tickets, local activities, insurance,
visa services, and tour guides. We also provide user support, supplier management, and customer relationship management services to packaged-tour
providers.
In-destination Activities
Destinations are often defined by the activities available upon arrival. Over the years, users are seeking more novel experiences and are eager to
do more memorable activities in the destinations. Driven by the rise of experiential travel, we offer a variety of in-destination products and services,
such as in-destination dining and shopping, day tours of popular tourist destinations, attraction and show tickets, customized tour guide services, and
virtual tour assistant. Users not only have many options for what and when to book in-destination activities, but also can book at the last minute in a
quick and straightforward manner on our platform. As of December 31, 2020, we offered over 310,000 in-destination activities around the world.
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Corporate Travel Management
In addition to serving individual users, we also serve corporate clients with similar products and services to help them plan business travel in a
cost-efficient way. We provide our corporate clients with business visits, incentive trips, meetings and conferences, travel data collection and analysis,
industry benchmarking, cost savings analysis, and travel management solutions. We have independently developed our Corporate Travel Management
System, which is an online platform integrating information management, online booking, online authorization, online inquiry, and travel reporting
systems.
Other Travel-Related Services
Our other travel-related services primarily include online advertising and financial services. We provide marketing planning and travel media
services to our ecosystem partners, as well as a wide range of advertising services to pan-industry brand partners. Based on our travel product and
service offerings, user base, and industry value chain, we also have obtained necessary licenses to facilitate users and ecosystem partners on our
platform with our financial services, which mainly cover consumer financing, supply-chain financing, and a range of digital solutions for our users and
ecosystem partners.
Content Offerings
We consolidate and aggregate travel-related content for our users to help them get inspired by new travel ideas, make informed travel decisions,
and share their travel experiences. Our users have access, through personalized content feeds and our search tools, to both user-generated content shared
by travelers based on their real travel experiences and professionally-generated content including our official selections and content produced by
professional travel bloggers, KOLs, and our ecosystem partners.
Reviews. We provide our users with detailed, authentic, and transparent information on our product and service offerings based on our users’
in-depth reviews and detailed ratings. We have been refining our user review framework to improve authenticity, objectivity, and relevance of our
review and rating system, creating a feedback loop for us to refine our products and services, enhance users’ search experience, and enable them to rely
on us for making well-informed travel decisions.
Community. Our community integrates the online travel content sharing features on our platform with our product and service offerings, so that
our users can discover, explore, and share travel-related content such as destination travel experiences and tips. In addition, we are able to push tailored
recommendations to our users while they are browsing through our community.
Selections and Recommendations. We provide our users with various lists of selected and recommended product and service offerings, such as
popular destinations, themed activities, restaurant guides, and special deals. Our selections and recommendations help inspire our users’ next great
getaway, from long weekend escapes to must-see destinations and to bucket-list adventures from around the globe.
Live Streaming. In March 2020, we launched our first mobile BOSS live streaming event featuring a live tour by our management team and
Trip.com live streaming series. Since then we have upgraded our live streaming channel into a platform with integrated resources and content. In
addition to our official channel, our live streaming platform also hosts professionally-generated content contributed by professional travel bloggers,
KOLs, and our ecosystem partners. We have collaborated with leading international hotel brands to offer our users discounts on luxury hotels through
live streaming.
User Support
We provide user support online and offline through multiple channels such as calls, instant messaging, email, and social networks, in multiple
media formats such as voice, text, image, and video, 24 hours a day, seven days a week. As of December 31, 2020, we had seven customer service
centers located in China and abroad, such as Shanghai, Nantong, Guangzhou, Manila, Tokyo, Seoul, and Edinburgh. These customer service centers are
staffed with in-house travel specialists who have participated in a formal training program before commencing work. We also provide comprehensive
aftersales services including aftersales support, pre-travel warnings, major incident compensation, a special situation refund policy, and emergency
support, among others.
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In 2016, we launched the first travel safety center in China. The service center established seven mechanisms to provide travelers with more
protection, including the application of the global supplier travel safety standards, travel warning centers, a global travel destination emergency
assistance mechanism, major disaster protection funds, a special reason cancelation policy, global travel insurance and rescue services, and a tour guide
responsibility mechanism. We provide our users with travel insurance service including insurance consultation and claim settlements, from delayed and
cancelled trips to accidental injury treatment, through one of our consolidated entities with insurance license.
In 2017, we launched the first global travel SOS service in China. Users who book a trip from our platforms have access to 24/7 emergency
support. The SOS service currently covers three major categories: (i) support in emergencies such as natural disasters and terrorist attacks, (ii) support in
case of injury or illness during the journey, including assistance in medical treatment, delivery of medicines, and translation services, and (iii) assistance
provided when valuables are lost during the journey, including assistance in the recovery of lost property and eventually bringing the property back to
the home country.
Technology
Since our inception, we have been able to support the growth in our online and offline traffic and transactions with our technology and
infrastructure. Our IT infrastructure is able to support nearly every aspect of our business, including our travel platform, mobile and website operations,
and customer service centers.
AI and Big Data
Our technology platform is empowered by AI, big data analytics, and other proprietary technologies. Our platform processes a huge amount of
travel-related data. Various big data and AI technologies such as natural language processing, speech recognition, computer vision, and conversational
AI, are used to inform various applications such as traffic forecasting, civil aviation big data analysis, flight delay prediction, and a tourism knowledge
graph, among others.
For our users, our technologies enable optimized search rankings, personalized recommendations, a streamlined user experience, enhanced user
engagement, and the sharing and viewing of user-generated content. Our user support cloud platform is developed on both public and private clouds to
optimize operational efficiency. The core technologies underlying our user support include (i) CtripIM, a self-developed instant messenger system which
offers a streamlined problem-solving process, (ii) Softswitch, which enables us to securely encrypt users’ displayed phone numbers to prevent leakage
of sensitive user information, and (iii) SoftPBX, a telephone system software that distributes calls through the intranet to different operators after the
user’s phone call is connected.
For the ecosystem partners, our technologies enable marketing and optimize operating efficiency based on traveler propensity analysis and
accurate demand predictions. We offer a variety of solutions to our ecosystem partners, such as (i) E-booking System for accommodation partners,
which provides standardized information input to accommodation partners to digitalize their offerings, and (ii) pricing error monitoring system for
airfare, which detects flight tickets with abnormally low fares (bug fares) using anomaly detection models based on historical and real-time airfare data.
Proprietary Search and Transaction Engines
We apply proprietary technologies in flight ticket search and accommodation search and transactions, which help us attract and retain users and
improve their experiences on our platform. These technologies are able to process data that covers the global product offerings available on our
platform, use algorithms to reduce computational cost, shorten search latency and processing time, and generate relevant results swiftly to ensure good
user experience.
Our technologies for flight ticket searches include a search engine and personalized recommendation system. These technologies can support
hundreds of millions of queries per day. The technology currently has covered departure or arrival cities worldwide and accommodates various
languages. We have also built intelligent tools based on big data analytics and machine learning technologies for ecosystem partners to price their
products appropriately and strengthen their competitive positions. We provide integration of travel information technology systems with online
transaction platforms, which further decreases airlines’ operating cost and maximizes revenue.
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Our technologies for accommodation searches include a hotel matching system, a hotel big data platform, and model algorithms. These
technologies can support billions of queries per day, with an industry leading average response time. They can also rapidly process tens of billions of
data points needed to calculate numerous room types, room status data, and room price data incrementally updated every day. The technology connects
hotel sales sites in countries and regions around the world and supports multiple currencies and all major international credit card payments.
Marketing and Brand Awareness
Through a combination of online and offline marketing, brand promotion, cross-marketing, and rewards program, we have created strong brands
that are commonly associated in China with travel products and services and user support. In addition, we leverage word-of-mouth referrals among users
to promote our brands. We will continue to use our focused marketing strategy to further enhance awareness of our brands and acquire new target users.
Brand Advertising
We currently operates through four leading travel brands, including (i) Ctrip, a leading provider of online travel and related services in China;
(ii) Qunar, a leading online travel agency in China; (iii) Trip.com, an online travel agency for global travelers; and (iv) Skyscanner, a leading global
travel search company.
We conduct our brand campaigns through advertising on video streaming platforms, targeted LCD displays in public spaces, and billboards at
airports, railway stations, and bus stations. We also work with celebrities in our marketing campaigns and embed our brand and travel products into live
TV shows, movies, and other entertainment marketing channels. We also have opened approximately 6,000 offline stores to supplement our online
marketing to acquire more consumers in the lower-tier cities in China and those who prefer an in-person experience. With these diverse channels, we
believe that we have effective strategies to enhance brand awareness and user engagement and attract a new generation of users, and we have a unique
advantage in our ability to develop truly multi-channel marketing solutions for global destinations.
Performance Advertising
We have contracted with the majority of the leading online marketing channels, such as search engines, browsers, and navigation websites, to
feature our websites and have cooperated with online companies to promote our services, as well as conducting public relations activities. We have
purchased related keywords or directory links to direct potential users to our websites.
We have also worked with major internet portals and leading mobile applications in their respective sectors to advertise locally and also have
worked with top smart phone manufacturers to increase the number of our app downloads and promote more activations and transactions. In addition,
we are actively testing all kinds of innovative and rapidly growing mobile channels that may appeal to consumers.
Cross-Marketing
We have entered into cross-marketing arrangements with major PRC domestic airlines, hotel chains, financial institutions, telecommunications
service providers, e-commerce and internet companies, and other corporations. For example, our airline partners and financial institution partners
recommend our products and services to members of their mileage programs or bank card holders. Users can accumulate miles by booking air tickets
through us or earn points by paying through co-branded credit cards.
Rewards Program
To secure our users’ loyalty and further promote our brand, we provide our users with a rewards program. This program allows our users to
accumulate membership points calculated according to the services purchased by the users. Our membership points have a fixed validity term and our
users may redeem these points for travel awards and other gifts.
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Seasonality
The travel service industry is characterized by seasonal fluctuations, and accordingly our revenues may vary from quarter to quarter. Since most of
our users are from China, to date, the third quarter of each year generally contributes the highest portion of our annual net revenues primarily due to the
strong demand for both leisure and business travel activities during the summer. These seasonality trends are difficult to discern in our historical results
because our revenues have grown substantially since inception. However, our future results may be affected by seasonal fluctuations in the use of our
services by our users. See “Item 5.A. Operating and Financial Review and Prospects — Operating Results.”
User Privacy and Data Security
We have internal rules and policies to govern how we may use and share personal information, as well as protocols, technologies and systems in
place to ensure that such information will not be accessed or disclosed improperly. Users must acknowledge the terms and conditions of the user
agreement before accessing our products and services, under which they consent to our collection, use, and disclosure of their data in compliance with
applicable laws and regulations, and we will only use the data of our users under the conditions agreed by our users.
From an internal policy perspective, we limit access to our servers that store our user and internal data on a “need-to-know” basis. We adopt a data
encryption system intended to ensure the secured storage and transmission of data, and prevent any unauthorized member of the public or third parties
from accessing or using our data in any unauthorized manner. We also deploy detection mechanisms, including machine learning technology and other
automated tools that help us identify misleading information on our platform on our platform to remove, suppress, or forward the content for human
review. Furthermore, we implement comprehensive data masking of user data for the purpose of fending off potential hacking or security attacks.
We engage legal counsel in and outside China to advise on our data protection policies and ongoing compliance with applicable laws and
regulations. As part of our internal procedure, we engage overseas legal counsel to advise on the applicable licensing and compliance requirements
before entering into new markets.
Intellectual Property
Our intellectual property rights primarily include trademarks and domain names associated with the name “Ctrip,” “Qunar,” “Trip.com,” and
“Skyscanner” and copyright and other rights associated with our websites, technology platform, booking software, and other aspects of our business. We
regard our intellectual property as a critical factor contributing to our success, although we are not dependent on any patents, intellectual property related
contracts or licenses other than some commercial software licenses available to the general public. We rely on trademark and copyright law, trade secret
protection, and confidentiality agreements with our employees to protect our intellectual property rights. We require our employees to enter into
agreements to keep confidential all information relating to our users, methods, business, and trade secrets during and after their employment with us.
Our employees are required to acknowledge and recognize that all inventions, trade secrets, works of authorship, developments, and other processes
made by them during their employment are our property.
As of December 31, 2020, we had over 700 patents registered with the PRC Intellectual Property Administration, including over 300 invention
patents, and over 700 pending patent applications in China.
As of the December 31, 2020, we owned over 1,100 registered trademarks and approximately 200 pending trademark applications, in various
categories with the Trademark Office of the PRC Intellectual Property Administration. In addition, we had over 70 registered trademarks in various
overseas countries and international jurisdictions. We have registered our major trademarks “Ctrip” and “(cid:0)(cid:0)” (simplified Chinese characters for Ctrip)
with the Trademark Office of the PRC Intellectual Property Administration, with the Registrar of Trademarks in Hong Kong, and also with the United
States Patent and Trademark Office. In 2009, we registered the trademark “(cid:0)(cid:0)Ctrip” (a combination of the Chinese and English characters for Ctrip)
with the Taiwan Intellectual Property Office and with Direcção dos Serviços de Economia of Macau. We have also registered the trademark “Ctrip” and
“(cid:0)(cid:0)” in Korea, European Union, Singapore, Switzerland, Australia, New Zealand, Japan, Turkey, Vietnam, the United Arab Emirates, Malaysia, India,
South Africa, Brazil, and Cambodia. We have also registered the trademark “Trip.com” in European Union, Japan, and the United States.
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As of December 31, 2020, we held over 600 computer software copyrights and over 150 other copyrights registered with the PRC Copyright
Administration.
As of December 31, 2020, we had over 230 registered domain names in China, including ctrip.com and ctrip.com.cn, and approximately 25
registered domain names outside China, including trip.com, all of which have been registered with www.markmonitor.com, and we have full legal rights
over these domain names. As of the date of this annual report, all of our registered domain names were in effect.
Competition
China’s travel industry is highly competitive. We compete primarily with other travel agencies, including domestic and foreign consolidators of
hotel accommodation and airline tickets as well as traditional travel agencies. As China’s travel market continues to evolve, we may be faced with
increased competition from new domestic travel agencies, including the ones operated by other major internet companies, or international players that
seek to expand into China. We may also face increasing competition from hotels and airlines as they increase their direct selling efforts or engage in
alliances with other travel service providers, as well as content platforms and social networks entering into the travel industry.
We compete based on a number of factors, including, among other things, brand recognition, depth and breadth of travel offerings, price
competitiveness, and user support and satisfaction. We believe that we are well-positioned to effectively compete on the basis of the factors listed above.
However, some of our current or future competitors may have longer operating histories, greater brand recognition, larger user and supplier bases, or
stronger financial, technical or marketing resources than we do. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Our Business and
Industry—If we do not compete successfully against new and existing competitors, we may lose our market share, and our business may be materially
and adversely affected.”
Customers and Suppliers
We have a broad base of customers, which primarily consist of our ecosystem partners, including airlines and other air ticket partners, hotel and
alternative accommodation partners, and various value-added travel products and services partners, such as insurance companies. We have cultivated
and maintained good relationships with our ecosystem partners since our inception. We have a team of employees dedicated to enhancing our
relationship with existing ecosystem partners and developing relationships with prospective ecosystem partners. Our customers also include but are not
limited to (i) users who purchase travel products that we pre-purchase from ecosystem partners, (ii) users who purchase ancillary value-added travel
products and services, and (iii) advertisers who post advertisements of their products and services on our online platforms.
Our suppliers primarily consist of online and mobile payment services, data storage, server hosting, and bandwidth providers, user acquisition
channels, and advertising and marketing service providers.
Strategic Investments and Acquisitions
To maintain and strengthen our leading market position in China and to become a major travel service provider in the Greater China market, we
constantly evaluate opportunities for strategic investments in, and acquisitions of, complementary businesses, assets and technologies and have made
such investments and acquisitions from time to time. We have made the following material strategic investments and acquisitions over the past two
years.
In August 2019, we completed a share exchange transaction with Naspers, a shareholder of MakeMyTrip, pursuant to which Naspers exchanged
certain ordinary shares and Class B convertible ordinary shares of MakeMyTrip for 4,108,831 newly issued ordinary shares of our company with fair
value of US$1.1 billion as of the closing date. Concurrently with the share exchange, we invested in a third-party investment entity by contributing
certain ordinary shares and Class B convertible ordinary shares of MakeMyTrip held by us and recorded the investment using equity method.
Immediately after the closing of the transaction, Naspers owned approximately 5.6% of our then total issued and outstanding ordinary shares, and we
owned certain number of ordinary shares and Class B convertible ordinary shares of MakeMyTrip, representing approximately 49% of MakeMyTrip’s
then total voting power. From an accounting perspective, we recorded this investment using equity method and the total consideration for the shares we
held in MakeMyTrip immediately after the closing of the transaction consisted of certain number of our newly issued ordinary shares worth of US$1.0
billion and our previously held equity investment of US$0.2 billion.
In November 2019, we and TripAdvisor, Inc. (Nasdaq: TRIP), or TripAdvisor, agreed on a strategic partnership to expand global cooperation
through various contracts. We and TripAdvisor agreed through our respective subsidiaries to form and jointly control a joint venture, where we would
contribute cash and market expertise and TripAdvisor would contribute a long-term exclusive brand and content license and other assets of its China
business. We both share inventories in travel categories at the joint venture level. The joint venture operates globally as TripAdvisor China. Due to the
partnership with TripAdvisor, Ms. Jane Jie Sun currently serves as a director of TripAdvisor.
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In November 2019, we obtained control of an online travel agency company in which we previously had held 51% equity interest with substantive
participating rights being held by the non-controlling shareholder. We obtained control of the online travel agency company when the non-controlling
shareholder agreed to remove these substantive participating rights. The deemed consideration was the previously held 51% equity interest, the fair
value of which was RMB259 million. We also recognized a gain of RMB196 million from the re-measurement of the previously held equity interest.
Health, Work Safety, Social, and Environmental Matters
We do not operate any manufacturing or warehousing facilities. Therefore, we are not subject to significant health, work safety, social, or
environmental risks. To ensure compliance with applicable laws and regulations, from time to time, our human resources department would, if necessary
and after consultation with our legal advisor, adjust our human resources policies to accommodate material changes to relevant labor and safety laws and
regulations. For the year ended December 31, 2020 and up to the date of this annual report, we had not been subject to any fines or other penalties due to
non-compliance with health, work safety, social, or environmental regulations.
PRC Government Regulations
Current PRC laws and regulations impose substantial restrictions on foreign ownership of the travel agency and value-added telecommunications
businesses in China. As a result, we conduct these businesses in China through contractual arrangements with our consolidated affiliated Chinese
entities as well as certain independent travel agencies. Some of our directors and officers, all of whom are PRC citizens, directly or indirectly own all or
most of the equity interests in our consolidated affiliated Chinese entities as of the date of this annual report.
According to our PRC legal counsel, Commerce & Finance Law Offices, the ownership structures, as described in this annual report, comply with
all existing PRC laws, rules and regulations.
Regulations Related to Foreign Investment in the PRC
Foreign Investment Industrial Policy
Investments activities in China by foreign investors are principally governed by the Catalog for the Encouragement of Foreign Investment
Industries (2020 Edition), or the Catalog, and the Special Administrative Measures (Negative List) for Foreign Investment Access (2020 Version), or the
Negative List, which were both promulgated by the MOFCOM and the NDRC and each became effective on January 27, 2021, and July 23, 2020. The
Catalog and the Negative List set forth the industries in which foreign investments are encouraged, restricted and prohibited. Industries that are not listed
in the Catalog and the Negative List are generally open to foreign investment unless otherwise specifically restricted by other PRC rules and regulations.
According to the Negative List, the foreign equity interests ownership of entities that engage in value-added telecommunications business (except
for e-commerce, domestic multi-party communication, storage and forwarding and call center) must not exceed 50%, and foreign investors are allowed
to hold up to 100% of equity interests in an online data processing and transaction processing business (including e-commerce business operation) in
China.
Foreign Investment Law and its Implementation Measures
On March 15, 2019, the National People’s Congress enacted the Foreign Investment Law, or the FIL, which came into effect on January 1, 2020.
The FIL has replaced the previous major laws and regulations governing foreign investment in the PRC, including the Sino-foreign Equity Joint
Ventures Enterprises Law of China, the Sino-foreign Co-operative Enterprises Law of China and the Wholly Foreign-invested Enterprise Law of China.
According to the FIL, “foreign-invested enterprises” refers to enterprises that are wholly or partly invested by foreign investors and registered under the
PRC laws within China, and “foreign investment” refers to any foreign investor’s direct or indirect investment activities in China, including:
(i) establishing foreign-invested enterprises in China either individually or jointly with other investors; (ii) obtaining stock shares, equity shares, shares
in properties or other similar interests of Chinese domestic enterprises; (iii) investing in new projects in China either individually or jointly with other
investors; and (iv) investing through other methods provided by laws, administrative regulations or provisions prescribed by the State Council.
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On December 26, 2019, the State Council issued Implementation Regulations for the Foreign Investment Law of China, or the FIL
Implementation Rules, which came into effect on January 1, 2020. According to the FIL Implementation Rules, in the event of any discrepancy between
the FIL, the FIL Implementation Rules and the relevant provisions on foreign investment promulgated prior to January 1, 2020, the FIL and the FIL
Implementation Rules shall prevail. The FIL Implementation Rules also set forth that foreign investors that invest in sectors on the Negative List in
which foreign investment is restricted shall comply with special management measures with respect to, among others, shareholding and senior
management personnel qualification in the Negative List. Pursuant to the FIL and the FIL Implementation Rules, the existing foreign-invested
enterprises established prior to the effective date of the FIL are allowed to keep their corporate organization forms for five years from the effectiveness
of the FIL before such existing foreign-invested enterprises change their organization forms and organization structures in accordance with the PRC
Company Law, the Partnership Enterprise Law of China and other applicable laws.
On December 30, 2019, the MOFCOM and the SAMR jointly promulgated the Measures on Reporting of Foreign Investment Information, which
came into effect on January 1, 2020, and has replaced the Interim Measures for the Administration of Record-filling on the Establishment and Changes
in Foreign-Invested Enterprises. Foreign investors or foreign-invested enterprises shall submit investment information to the commerce administrative
authorities through the Enterprise Registration System and the National Enterprise Credit Information Publicity System.
Regulations Related to Value-Added Telecommunications Services
In 2000, the State Council promulgated the Telecommunications Regulations of China, or the Telecommunications Regulations, most recently
amended in February 2016, which provide the regulatory framework for telecommunications service providers in China and require a
telecommunications service provider to obtain an operating license prior to commencing its operations. The Telecommunications Regulations categorize
all telecommunications services as either basic telecommunications services or value-added telecommunications services. Providers of value-added
telecommunications services are required to obtain a license for value-added telecommunications services. Pursuant to the Catalog of
Telecommunications Services, an attachment to the Telecommunications Regulations, which was most recently amended on June 6, 2019, information
services provided via public telecommunication network or the internet and the online data processing and transaction processing services provided via
public telecommunication network or the Internet by utilizing various kinds of data and transaction processing application platforms that are connected
to public telecommunication network or the Internet fall within value-added telecommunications services.
The Administrative Measures on Internet Information Services, which was promulgated by the State Council on September 25, 2000, and
amended on January 8, 2011, set out guidelines on the provision of internet information services. According to the Administrative Measures on Internet
Information Services, the internet information services is classified into commercial internet information services and non-commercial internet
information services; an operator of commercial internet information services must obtain a value-added telecommunications operating license for the
provision of internet information services from the appropriate telecommunications authorities. The Administrative Measures for Telecommunications
Operating Licenses, which was promulgated by the MIIT on July 3, 2017, and became effective on September 1, 2017, further regulates the
telecommunications operating licenses.
Restrictions Related to Travel Agency
On April 25, 2013, the Standing Committee of the National People’s Congress issued the PRC Tourism Law, which took effect on October 1, 2013
and was amended in 2016 and 2018. The PRC Tourism Law aims to protect tourists’ and tour operators’ legal rights, regulate travel market and promote
the development of travel industry, and sets forth specific requirements for the operation of travel agencies. Travel agencies are prohibited from
(i) leasing, lending or illegally transferring travel agency operation licenses or otherwise disseminating untrue or inaccurate information when soliciting
customers and organizing tours, (ii) conducting any false publicity to mislead customers, (iii) arranging visits to or participation in any project or activity
in violation of PRC laws and regulations or social morality, (iv) organizing tours at unreasonably low price to induce or cheat tourists, or obtaining
unlawful profits such as kickbacks, and (v) changing or ceasing scheduled itineraries without reasons and forcing the tourists to participate in other
activities against the will of tourists. In addition, travel agencies must enter into contracts with customers for travel services; and before a tour starts, a
customer may assign his personal rights and obligations in a packaged-tour contract to any third person, whom the travel agency cannot refuse without
cause, as long as any fee increase will be borne by the customer and the relevant third person. Accordingly, travel agencies may be subject to civil
liabilities for failing to fulfill the obligations discussed above, which include rectification, confiscation of any illegal income, imposition of a fine, an
order to cease business operation, or revocation of its travel agency permit.
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The travel industry is subject to the supervision of the PRC Ministry of Culture and Tourism and local tourism administrations. The principal
regulations governing travel agencies in China include the Travel Agency Regulations, issued by the State Council in February 2009, which became
effective on May 1, 2009 and most recently amended on November 29, 2020, and the Implementing Rules of Travel Agency Regulations promulgated
by the PRC National Tourism Administration in April 2009, which became effective as of May 3, 2009 and most recently amended on December 12,
2016. Under these regulations, a travel agency must obtain a license from the National Tourism Administration or the provincial-level tourism
administration it authorizes to conduct outbound travel business, and a license from the provincial-level tourism administration or the municipal tourism
administration it authorizes to conduct domestic and inbound travel agency business.
The Travel Agency Regulations permit foreign investors to establish foreign invested travel agencies. Foreign-owned travel agencies are allowed
to open branches nationwide, but are restricted from engaging in outbound tourism business in China, unless otherwise determined by the State Council,
or provided under a bilateral free trade agreement between the country and China, or the closer economic partnership agreements between China, Hong
Kong and Macau. In December 2009, the State Council promulgated the Opinion on Accelerating Development of Travel Industry, which gradually
allows foreign invested travel agencies to operate business of arranging PRC residents traveling to overseas destinations on a trial basis. On August 29,
2010, the NTA and MOFCOM further promulgated the Interim Measures for Supervising Pilot Operation of Overseas Travel Business by Sino-Foreign
Joint Venture Travel Agencies, according to which the National Tourism Administration may choose and approve certain qualified Sino-foreign joint
venture travel agencies to operate business of arranging PRC residents traveling to overseas destinations, Hong Kong and Macau (excluding Taiwan), on
a trial basis. Based on the Plan to Strengthen the Reform and Open-up Policy in China (Shanghai) Pilot Free Trade Zone promulgated by the State
Council in March 2017, China (Shanghai) Pilot Free Trade Zone has implemented a pilot project that allows the wholly foreign-owned travel agencies
registered in China (Shanghai) Pilot Free Trade Zone that satisfied with required conditions to operate outbound tourism business. In January 2019, the
PRC State Council promulgated the Approval to the Work Plan on Fully Promoting the Comprehensive Pilot Program for Expanding the Opening-Up of
the Service Industry of Beijing Municipality, which allows wholly foreign-owned travel agencies to provide outbound travel services (except for
Taiwan) for PRC citizens on a trial basis.
On August 20, 2020, the Ministry of Culture and Tourism promulgated a Tentative Administrative Measure on Online Travel Operation, which
intends to standardize the online travel operation business. The online travel operation services means provision of travel services to the travelers via the
information network such as Internet and such services include package tour, transportation, accommodation, dining, sightseeing, entertainment and so
on. The operator of online travel business shall provide real and accurate travel services information without false promotion and advertisement. The
operator of online travel platform shall verify the identification, license, quality standard and credit rating of all travel business operator registered on the
platform. The online travel business operator shall protect the personal data privacy of travelers and shall not set unfair trading conditions based on
consumption record and preference by abusing data analyzing technology. The platform operator shall examine the license and qualification of travel
business operator inside the platform and alert the travelers for safety warning, and shall take the liability if it fails to perform relevant obligations
requested by such administrative measures.
Regulations Related to Air-ticketing
The air-ticketing business is subject to the supervision of the China Air Transportation Association and its branches. In April 2015, the China Air
Transport Association issued the Air Transportation Sales Agent Qualification Accreditation Measures pursuant to which an air-ticketing agency must
obtain a permit from air transportation sales agency branch, an affiliate of the China Air Transport Association in which the agency proposes to conduct
the air-ticketing business. There are two types of air-ticketing permits in China, permits for selling tickets for international flights and flights to Hong
Kong, Macau and Taiwan, and permits for selling tickets for domestic flights in China.
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In February 2019, the Air Transportation Sales Agent Qualification Accreditation Measures were abolished and air transportation sales agencies
can operate air-ticketing business without permits as was previously required. Alternatively, the Self-Discipline Measures for Air Transportation Sales
Agency Industry was promulgated by the China Air Transport Association, which encourages self-discipline administration for air transportation sale
agency industry. The China Air Transport Association has further promulgated the Business Standards of Air Passenger Transportation Sales Agencies
and the Business Standards of Air Freight Transportation Sales Agencies, which introduce general business standards applied by airlines for selecting
and authorizing their air-ticketing sales agents. For example, basic requirements for passenger air transportation sales agencies are, including but not
limited to, (i) having proper business license, (ii) having telecommunication and information services business license if conducting online air-ticketing
sales, (iii) having suitable capital contributed for business operation, (iv) having capital guarantee or pledge in favor of airlines, (v) agencies and their
principals not having poor credit records, and (vi) having sufficient, properly trained employees.
In August 2017, the Civil Aviation Administration of China issued the Notice on Regulating Online Air-ticketing, pursuant to which online
air-ticketing platform shall not conduct bundle sales of any other services and products by default along with selling air tickets. The online air-ticketing
platform shall display ancillary air-ticket-related services and products (e.g. VIP lounge coupon and insurance) in an explicit and accurate manner and
shall offer such services and products to customers as an option in addition to their air ticket purchases.
Regulations Related to E-commerce
The SAIC adopted the Interim Measures for the Administration of Online Commodities Trading and Relevant Services on May 31, 2010, and
replaced by the Administrative Measures for Online Trading on January 26, 2014, which became effective on March 15, 2014. These measures impose
more stringent requirements and obligations on online trading or service operators as well as third-party trading platforms. For example, marketplace
platform providers are obligated to examine the legal status of each third-party merchant selling products or services on their platforms and display on a
prominent location on a merchant’s web page the information stated in the merchant’s business license or a link to its business license. On December 24,
2014, the MOFCOM promulgated the Provisions on the Procedures for Formulating Transaction Rules of Third-Party Online Retail Platforms (Trial) to
regulate the formulation, revision and enforcement of transaction rules for online retail marketplace platforms.
On August 31, 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which came into effect on
January 1, 2019. The E-commerce Law imposes a series of requirements on e-commerce operators including e-commerce platform operators, merchants
operating on the platform and the individuals and entities carrying out business online. According to the E-commerce Law, e-commerce operators who
provide search results based on consumers’ characteristics, such as hobbies and consumption habits, shall also provide consumers with options that are
not targeted at their personal characteristics at the same time, respect and fairly protect the legitimate interests of the consumers. In addition,
e-commerce platform operators are not allowed to impose unreasonable restrictions over or add unjustified conditions to transactions concluded on their
platforms by merchants, or charge merchants operating on its platform any unreasonable fees.
An e-commerce operator shall obtain a license for value-added telecommunications services with the specification of online data processing and
transaction processing business from appropriate telecommunications authorities, pursuant to the Telecommunications Regulations and the Catalog of
Telecommunications Services.
Regulations Related to Consumer Protection
The Consumer Protection Law, which was promulgated by the Standing Committee of the National People’s Congress on October 31, 1993, and
last amended on October 25, 2013, effective as of March 15, 2014, sets out the obligations of business operators and the rights and interests of
consumers. Business operators must guarantee the quality, function, usage and term of validity of the goods or services they sell or provide, if these
goods and services are consumed under normal standards. The consumers whose interests have been damaged due to their purchase of goods or
acceptance of services on online platforms may claim damages from the sellers or service providers. Online platform operators may be subject to
liabilities if the lawful rights and interests of consumers are infringed in connection with consumers’ purchase of goods or acceptance of services on
online platforms if the platform operators fail to provide consumers with authentic contact information of the sellers or service providers.
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Regulations Related to Internet Information Security and Privacy Protection
Internet content in China is also regulated and restricted from a state security point of view. The Decision Regarding the Safeguarding of Internet
Security, enacted by the Standing Committee of the National People’s Congress on December 28, 2000, and amended with immediate effect on
August 27, 2009, makes it unlawful to, including but not limited to: (i) gain improper entry into a computer information system of national affairs,
national defense or cutting-edge science and technology; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false
commercial information; or (v) infringe intellectual property rights. The Administrative Measures for the Security Protection of International
Connections to Computer Information Network, issued by the Ministry of Public Security, or the MPS, on December 30, 1997, and amended on
January 8, 2011, prohibits the use of the internet in ways that, among other things, result in a leakage of state secrets or the distribution of socially
destabilizing content.
On July 1, 2015, the Standing Committee of the National People’s Congress issued the National Security Law, which came into effect on the same
day. The National Security Law provides that the state shall safeguard the sovereignty, national security and cyber security and development interests of
the state, and that the state shall establish a national security review and supervision system to review, among other things, 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.
On June 28, 2016, the Cyberspace Administration of China, or the CAC, promulgated the Administrative Provisions on Mobile Internet
Applications Information Services, which became effective on August 1, 2016, providing that mobile Internet application providers are prohibited from
engaging in any activity that may endanger national security, disturb social order or infringe the legal rights of third parties, and may not produce, copy,
release or disseminate through mobile internet applications any content prohibited by laws and regulations.
On November 7, 2016, the Standing Committee of the National People’s Congress issued the Cyber Security Law, which came into effect on
June 1, 2017. The Cyber Security Law provides that network operators must set up a classified protection system for cyber security, including
appointing dedicated cyber security personnel, taking technical measures to prevent computer viruses, network attacks and intrusions, taking technical
measures to monitor and record network operation status and cyber security incidents, and taking data security measures such as data classification,
backups and encryption. The Cyber Security Law imposes a relatively vague but broad obligation to provide technical support and assistance to the
public and state security authorities in connection with criminal investigations or for reasons of national security. The Cyber Security Law also requires
network operators that provide network access or domain name registration services, landline or mobile phone network access, or that provide users
with information publication or instant messaging services, to require users to provide a real identity when they sign up.
PRC government authorities have enacted legislations on internet use to protect personal information from any unauthorized disclosure and
prohibits an internet content provision operator from insulting or slandering a third party or infringing the lawful rights and interests of a third party. The
Several Provisions on Regulating the Market Order of Internet Information Services, promulgated by the MIIT on December 29, 2011, and became
effective on March 15, 2012, stipulate that internet information provider may not, without user’s consent, collect user’s personal information, which is
defined as user 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 user’s prior consent, unless when required by laws or regulations. In addition, an internet information service
providers shall expressly inform the users of the methods, content and usage of the collection and process of their personal information and shall not
collect any information not necessary for or beyond the purpose of the services they provide. Internet information provider are also required to ensure
the proper security of user’s personal information, and take immediate remedial measures if user’s personal information has been or may be divulged.
On July 16, 2013, the MIIT issued the Order for the Protection of Telecommunication and Internet User Personal Information. Most requirements
under the order that are relevant to internet content provision operators are consistent with pre-existing requirements but the requirements under the
order are often more stringent and have a wider scope. If an internet content provision operator wishes to collect or use personal information, it may do
so only if such collection is necessary for the services it provides. Internet content provision operators are further prohibited from divulging, distorting
or destroying any such personal information, or selling or providing such information unlawfully to other parties.
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On January 23, 2019, the Cyberspace Administration of China, the MIIT and the MPS, and the SAMR jointly issued the Notice on Special
Governance of Illegal Collection and Use of Personal Information via Apps, which restates the requirement of legal collection and use of personal
information, encourages app operators to conduct security certifications and encourages search engines and app stores to clearly mark and recommend
those certified apps. On November 28, 2019, the Cyberspace Administration, MIIT, the MPS and SAMR jointly issued the Measures to Identify Illegal
Collection and Usage of Personal Information by Apps, which lists six types of illegal collection and usage of personal information, including “failure to
publish rules on the collection and usage of personal information,” “failure to expressly state the purpose, manner and scope of the collection and usage
of personal information,” “collecting and using personal information without obtaining consents from users,” “collecting personal information irrelevant
to the services provided,” “providing personal information to other parties without obtaining consent” and “failure to provide the function of deleting or
correcting personal information as required by law or failure to publish the methods for complaints and reports or other information.”
On August 29, 2015, the Standing Committee of the National People’s Congress issued the Ninth Amendment to the Criminal Law, effective on
November 1, 2015. Any internet service provider that fails to comply with obligations related to internet information security administration as required
by applicable laws and refuses to rectify upon order shall be subject to criminal penalty for (i) any large-scale dissemination of illegal information;
(ii) any severe consequences due to the leakage of the user information; (iii) any serious loss of criminal evidence; or (iv) other severe circumstances.
Furthermore, any individual or entity that (i) sells or provides personal information in a manner which violates relevant regulations, or (ii) steals or
otherwise illegally obtains any personal information is subject to criminal penalty in severe circumstances.
Regulations Related to Advertising Business
The Advertisement Law of China, which was promulgated by the Standing Committee of the National People’s Congress on October 27, 1994,
and last amended on October 26, 2018, requires advertisers to ensure that the content of the advertisements are true. The content of advertisements shall
not contain prohibited information, including but not limited to: (i) information that harms the dignity or interests of the State or divulges the secrets of
the State, (ii) information that contains wordings such as “national level,” “highest level” and “best” and (iii) information that contains ethnic, racial,
religious or sexual discrimination. Advertisements posted or published through the internet shall not affect normal usage of network by users.
Advertisements published in the form of pop-up window on the internet shall display the close button clearly to make sure that the viewers can close the
advertisement by one click.
The Internet Advertisement Interim Measures, which were promulgated by the SAIC on July 4, 2016, and became effective on September 1, 2016,
regulate any advertisement published on the Internet, including but not limited to, those on websites, webpage and apps, those in the forms of word,
picture, audio, video and others. According to the Internet Advertisement Measures, Internet information service providers must stop any person from
using their information services to publish illegal advertisements if they are aware of, or should reasonably be aware of, such illegal advertisements even
if the Internet information service provider merely provides information services and has not involved in the internet advertisement businesses.
Regulations Related to Insurance Business
In June 2007, the China Insurance Regulatory Commission, which has been merged into the China Banking and Insurance Regulatory
Commission, promulgated the Administrative Measures for Insurance Licenses, which was amended in February 2020, pursuant to which all insurance
agencies must obtain an insurance license from the China Banking and Insurance Regulatory Commission.
In November 2020, the China Banking and Insurance Regulatory Commission promulgated the Provisions on the Supervision and Administration
of Insurance Agencies, which took effect on January 1, 2021 and replaced the Provisions for the Supervision and Administration of Professional
Insurance Agencies issued in September 2009, pursuant to which an “insurance agency” refers to an agent that is instructed by and receives
commissions from insurance companies to handle insurance services to the extent authorized by the insurance companies, including professional
insurance agencies, sideline insurance agencies, and individual insurance agents. Professional insurance agencies and the sideline insurance agencies
who are legal persons must obtain license relating to insurance agency operations from the China Banking and Insurance Regulatory Commission.
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In December 2020, the China Banking and Insurance Regulatory Commission issued the Measures on the Supervision and Administration of
Internet Insurance Business, which took effect on February 1, 2021 and replaced the Interim Measures on the Supervision and Administration of Internet
Insurance Business issued in July 2015, pursuant to which internet insurance businesses shall be carried out by insurance institutions legally established,
including insurance companies and insurance intermediaries, and the insurance institutions are required to run a self-operated online platform that satisfy
certain conditions.
Regulations Related to Intellectual Property Rights
Trademark
Trademarks are protected by the Trademark Law of China which was promulgated by the Standing Committee of the National People’s Congress
on August 23, 1982, last amended on April 23, 2019, and took effect on November 1, 2019, as well as the Implementation Regulation of the PRC
Trademark Law, adopted by the State Council on August 3, 2002, and revised on April 29, 2014. In the PRC, registered trademarks include commodity
trademarks, service trademarks, collective marks and certification marks. The Trademark Office of China National Intellectual Property Administration
handles trademark registrations and grants a term of 10 years to registered trademarks commencing from the date of registration and the registered
trademarks can be renewable every 10 years where a registered trademark needs to be used after the expiration of its validity term.
Patent
According to the Patent Law of China, or the Patent Law, promulgated by the Standing Committee of the National People’s Congress on
March 12, 1984, last amended on October 17, 2020 and will be effective on June 1, 2021, and the Implementing Rules of the Patent Law of China,
promulgated by the State Council on June 15, 2001, last amended on January 9, 2010, and effective from February 1, 2010, there are three types of
patents in the PRC: invention patents, utility model patents and design patents. Under the currently effective Patent Law, the protection period of a
patent right for invention patents shall be 20 years and the protection period of a patent right for utility model patents and design patents shall be 10
years, both commencing from the filing date. According to the Patent Law, any entity or individual that seeks to exploit a patent owned by another party
shall enter into a patent license contract with the patent owner concerned and pay patent royalties to the patent owner. Pursuant to the Measures for the
Filling of Patent Licensing Contracts, promulgated by the State Intellectual Property Office on June 27, 2011, and effective as of August 1, 2011, the
State Intellectual Property Office shall be responsible for filing of patent licensing contracts nationwide and the parties concerned shall complete filing
formalities within three months from the effective date of a patent licensing contract.
Copyright
The Copyright Law of China, or the Copyright Law, which was promulgated by the Standing Committee of the National People’s Congress on
September 7, 1990, last amended on November 11, 2020, and will take effect on June 1, 2021. Under the currently effective Copyright Law, Chinese
citizens, legal persons, or other organizations shall, whether published or not, enjoy copyright in their works, which include, among others, works of
literature, art, natural science, social science, engineering technology and computer software. The purpose of the Copyright Law aims to encourage the
creation and dissemination of works which is beneficial for the construction of socialist spiritual civilization and material civilization and promote the
development and prosperity of socialist cultural and scientific undertakings.
The Computer Software Copyright Registration Measures, or the Software Copyright Measures, promulgated by the National Copyright
Administration of China on February 20, 2002, regulate registrations of software copyright, exclusive licensing contracts and transfer contracts for
software copyright. The National Copyright Administration shall be the competent authority for the nationwide administration of software copyright
registration and the Copyright Protection Center of China is designated as the software registration authority. The Copyright Protection Center of China
shall grant registration certificates to the Computer Software Copyrights applicants if the applications conform to the provisions of both the Software
Copyright Measures and the Computer Software Protection Regulations.
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Domain Names
The Administrative Measures on Internet Domain Names, which was promulgated by the MIIT on August 24, 2017, and became effective on
November 1, 2017, regulates the “.CN” and the “zhongguo (in Chinese character)” shall be China’s national top level domains. Any party that engages
in internet information services shall use its domain name in compliance with laws and regulations and in line with relevant provisions of the
telecommunications authority, and shall not use its domain name to commit any illegal act.
Regulations Related to Anti-unfair Competition
According to the Anti-Unfair Competition Law of China, or the Anti-Unfair Competition Law, which was adopted by the Standing Committee of
the National People’s Congress on September 2, 1993, became effective as of December 1, 1993, and last amended on April 23, 2019, unfair
competition refers to that the operator disrupts the market competition order and damages the legitimate rights and interests of other operators or
consumers in violation of the provisions of the Anti-unfair Competition Law in the production and operating activities. Pursuant to the Anti-unfair
Competition Law, operators shall abide by the principle of voluntariness, equality, impartiality, integrity and adhere to laws and business ethics during
market transactions. Operators in violation of the Anti-unfair Competition Law shall bear corresponding civil, administrative or criminal liabilities
depending on the specific circumstances.
Regulations Related to Labor and Social Security
According to the Labor Law of China, which was promulgated by the Standing Committee of the National People’s Congress on July 5, 1994,
came into effect on January 1, 1995, and was last amended on December 29, 2018, the Labor Contract Law of China, which was promulgated by the
Standing Committee of the National People’s Congress on June 29, 2007, came into effect on January 1, 2008, and was amended on December 28, 2012,
and came into effect on July 1, 2013, and the Implementation Regulations on Labor Contract Law of China, which was promulgated and came into
effect on September 18, 2008, by the State Council, labor contracts in written form shall be executed to establish labor relationships between employers
and employees. In addition, wages cannot be lower than local minimum wage. The employers must establish a system for labor safety and sanitation,
strictly abide by State rules and standards, provide education regarding labor safety and sanitation to its employees, provide employees with labor safety
and sanitation conditions and necessary protection materials in compliance with State rules and carry out regular health examinations for employees
engaged in work involving occupational hazards.
According to the Social Insurance Law of China, which was promulgated by the Standing Committee of the National People’s Congress on
October 28, 2010, came into effect on July 1, 2011, and was amended on December 29, 2018, the Provisional Regulations on the Collection and
Payment of Social Insurance Premium, which was promulgated by the State Council on January 22, 1999, and amended on March 24, 2019, and the
Regulations on the Administration of Housing Fund, which was promulgated by the State Council on April 3, 1999, came into effective on the same date
and was last amended on March 24, 2019, employers are required to contribute, on behalf of their employees, to a number of social security funds,
including funds for basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, maternity insurance and
housing funds. Any employer who fails to contribute may be fined and ordered to make up for the deficit within a stipulated time limit.
Regulations Related to Taxation
EIT
According to the Enterprise Income Tax Law of China, or the EIT Law, which was promulgated on March 16, 2007, came into effect on
January 1, 2008, and last amended on December 29, 2018, and the Implementation Regulations on the Enterprise Income Tax Law, which was
promulgated by the State Council on December 6, 2007, came into effect on January 1, 2008, amended by the State Council on April 23, 2019, and
came into effect on the same date, a uniform income tax rate of 25% will be applied to resident enterprises and non-resident enterprises that have
“establishment or place” situated in China. Besides enterprises established within the PRC, enterprises established in accordance with the laws of other
judicial districts whose “de facto management bodies” are within the PRC are considered “resident enterprises” and subject to the uniform 25%
enterprise income tax rate for their global income. A non-resident enterprise refers to an entity established under foreign law whose “de facto
management bodies” are not within the PRC but which have an establishment or place of business in the PRC, or which do not have an establishment or
place of business in the PRC but have income sourced within the PRC. An income tax rate of 10% will normally be applicable to dividends declared to
or any other gains realized on the transfer of shares by non-PRC resident enterprise investors that do not have an establishment or place of business in
the PRC, or that have such establishment or place of business but the relevant income is not substantially connected with the establishment or place of
business, to the extent such dividends or other gains are derived from sources within the PRC.
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According to the Arrangement for the Avoidance of Double Taxation and Tax Evasion between Mainland of China and Hong Kong entered into
between Mainland China and Hong Kong on August 21, 2006, if the non-PRC parent company of a PRC enterprise is a Hong Kong resident which
directly owns 25% or more of the equity interest of the PRC foreign-invested enterprise which pays the dividends and interests, the 10% withholding tax
rate applicable under the EIT Law may be lowered to 5% for dividends and 7% for interest payments if a Hong Kong resident enterprise is determined
by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such the Arrangement for the Avoidance of Double
Taxation and Tax Evasion between Mainland of China and other applicable laws. However, according to the Notice on the Certain Issues with Respect
to the Enforcement of Dividend Provisions in Tax Treaties, which was promulgated by the STA on February 20, 2009, and came into effect on the same
date, if the relevant PRC tax authorities determine, in their discretion, that a company benefits unjustifiably from such reduced income tax rate due to a
transaction or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment; and based on the
Announcement of the Certain Issues with Respect to the “Beneficial Owner” in Tax Treaties, issued by the STA on February 3, 2018, and effective on
April 1, 2018, if an applicant’s business activities do not constitute substantive business activities, it could result in the negative determination of the
applicant’s status as a “beneficial owner,” and consequently, the applicant could be precluded from enjoying the above-mentioned reduced income tax
rate of 5% under the Arrangement for the Avoidance of Double Taxation and Tax Evasion between Mainland of China.
VAT
The Provisional Regulations on Value-added Tax, which was promulgated on December 13, 1993, came into effect on January 1, 1994, last
amended on November 19, 2017, and the Detailed Implementing Rules of the Provisional Regulations on Value-added Tax, which was promulgated on
December 18, 2008, and amended on October 28, 2011, came into effect on November 1, 2011, set out that all taxpayers selling goods or providing
processing, repairing or replacement labor services, sales of services, intangible assets and real property and importing goods in China shall pay a value-
added tax.
The State Council approved, and the STA and the Ministry of Finance officially launched a pilot value-added tax reform program starting from
January 1, 2012, or the VAT Pilot Program, applicable to businesses in selected industries. Businesses in the VAT Pilot Program would pay value-added
tax instead of business tax. The VAT Pilot Program was initiated in Shanghai, then further applied to 10 additional regions such as Beijing and
Guangdong province. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the Provisional Regulations of China on
Business Tax and Amending the Provisional Regulations of China on Value-added Tax, according to which, all enterprises and individuals engaged in
the sale of goods, the provision of processing, repairing and replacement labor services, sales of services, intangible assets, real property and the
importation of goods within the territory of China are the taxpayers of value-added tax. The value-added tax rates generally applicable are simplified as
17%, 11%, 6% and 0%, and the value-added tax rate applicable to the small-scale taxpayers is 3%. According to the Notice of the Ministry of Finance
and the STA on Adjusting Value added Tax Rates, issued on April 4, 2018, and became effective on May 1, 2018, the value-add tax rates of 17% and
11% applicable to the taxpayers who have value-added tax taxable sales activities or imported goods are adjusted to 16% and 10%, respectively.
According to the Notice of the Ministry of Finance, the STA and the General Administration of Customs on Relevant Policies for Deepening Value
Added Tax Reform, issued on March 20, 2019, and became effective on April 1, 2019, such value added tax rate was reduced to 13% and 9%,
respectively.
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Regulations Related to Foreign Exchange Control
The principal regulations governing foreign currency exchange in China are the Regulation on the Foreign Exchange Control of PRC,
promulgated by the State Council on January 29, 1996, came into effect on April 1, 1996, and last amended on August 5, 2008, and the Regulations on
the Administration of Foreign Exchange Settlement, Sale and Payment, promulgated by the People’s Bank of China in June 1996 and came into effect
on July 1, 1996, according to which, Renminbi for current account items is freely convertible, including the distribution of dividends, interest payments,
trade and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans and investments in securities
outside of China, unless the prior approval or record-filing of SAFE or its local counterpart is obtained.
According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment, or the
SAFE Circular 13, which was promulgated by SAFE on February 13, 2015, came effective on June 1, 2015, and amended on December 30, 2019, banks
are required to review and carry out foreign exchange registration under foreign direct investment. The SAFE and its branches shall implement indirect
supervision over foreign exchange registration of foreign direct investment via the banks. The Circular on the Reforming of Administrative Methods
Regarding the Foreign Exchange Capital Settlement of Foreign-Invested Companies, or the SAFE Circular 19, promulgated on March 30, 2015, came
into effective on June 1, 2015, and last amended on December 30, 2019, allows foreign-invested enterprises whose main business is investment to make
equity investments by using RMB fund converted from foreign exchange capital. Under the SAFE Circular 19, the foreign exchange capital in the
capital account of foreign-invested enterprises upon the confirmation of interests of monetary contribution by the local foreign exchange bureau (or the
book-entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operation needs of the enterprises. The
proportion of willingness-based foreign exchange settlement of capital for foreign-invested enterprises is temporarily set at 100%. The SAFE can adjust
such proportion in due time based on the circumstances of the international balance of payments. However, SAFE Circular 19 and the Circular on
Reforming and Regulating the Administrative Policy of the Settlement under Capital Accounts, promulgated on June 9, 2016, continues to prohibit
foreign-invested enterprises from, among other things, using RMB fund converted from its foreign exchange capitals for expenditure beyond its
business scope, investing and financing directly or indirectly in securities and other investments except for bank’s principal-secured products, providing
loans to non-affiliated enterprises except as permitted by its business scope, or constructing or purchasing real estate not for self-use.
On October 23, 2019, the SAFE released the Circular on Further Promoting the Facilitation of Cross-Border Trade and Investment, according to
which besides foreign-invested enterprises engaged in investment business, non-investment foreign-invested enterprises are also permitted to make
domestic equity investments with their capital funds in foreign currency provided that such investments do not violate the Negative List (2020) and the
target investment projects are genuine and in compliance with laws. According to the Circular on Optimizing Administration of Foreign Exchange to
Support the Development of Foreign-related Business, issued by the SAFE on April 10, 2020, eligible enterprises are allowed to make domestic
payments by using their income under capital accounts, such as capital funds, foreign debts and the proceeds from overseas listing, without submitting
the evidentiary materials concerning authenticity of such capital for banks in advance; provided that their capital use is authentic and in compliance with
administrative regulations on the use of income under capital accounts. The bank in charge shall conduct post spot checking in accordance with the
relevant requirements.
According to the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive
Plans of Overseas Publicly Listed Companies, which was promulgated by SAFE in February 2012, PRC citizens or non-PRC citizens residing in China
for a continuous period of not less than one year (except for foreign diplomatic personnel in China and representatives of international organizations in
China) who participate in any stock incentive plan of an overseas publicly listed company shall, collectively entrust a domestic agency (may be the
Chinese affiliate of the overseas publicly listed company which participates in stock incentive plan, or other domestic institutions qualified for asset trust
business lawfully designated by such company) through the Chinese affiliate of the overseas publicly listed company to handle foreign exchange
registration, and entrust an overseas institution to handle issues like exercise of options, purchase and sale of corresponding stocks or equity and transfer
of corresponding funds. In addition, the domestic agency is required to amend the SAFE registration with respect to the stock incentive plan if there is
any material change to the stock incentive plan.
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The Circular of the SAFE on Foreign Exchange Administration of Overseas Investments and Financing and Round-Trip Investments by Domestic
Residents via Special Purpose Vehicles promulgated by the SAFE on July 4, 2014, and came into effective on the same date, which replaced the Circular
of the SAFE on Foreign Exchange Administration for Financing and Round-Trip Investments by Domestic Residents via Overseas Special Purchase
Vehicles promulgated by the SAFE on October 21, 2005 and came into effective on November 1, 2005, states that (i) a PRC resident, including a PRC
resident natural person or a PRC legal person, shall register with the local branch of the SAFE before it contributes its assets or equity interest in
domestic enterprises or offshore assets or interests into a special purpose vehicle for the purpose of investment and financing; and (ii) when the special
purpose vehicle undergoes change of basic information, such as change in PRC resident natural person shareholder, name or operating period, or
occurrence of a material event, such as change in share capital of a PRC resident natural person, performance of merger or split, the PRC resident shall
register such change with the local branch of the SAFE in a timely manner.
Regulations Related to Dividend Distributions
The principal laws and regulations regulating the dividend distribution of dividends by foreign-invested enterprises in China include the Company
Law of China last amended in 2018 and the FIL. Under the current regulatory regime in the PRC, foreign-invested enterprises in the PRC may pay
dividends only out of their accumulated profit, if any, determined in accordance with PRC accounting standards and regulations. A PRC company,
including foreign-invested enterprise, is required to set aside as statutory reserve funds at least 10% of its after-tax profit, until the cumulative amount of
such reserves funds reaches 50% of its registered capital, and shall not distribute any profits until any losses from prior fiscal years have been offset.
Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Regulations Related to M&A and Overseas Listings
The M&A Rules was jointly promulgated by six PRC governmental authorities including the MOFCOM, the STA, the SAFE, the SAIC, the State-
owned Assets Supervision and Administration Commission of the State Council and the CSRC on August 8, 2006, and amended on June 22, 2009.
Foreign investors must comply with the M&A Rules when they purchase equity interests of a domestic company or subscribe the increased capital of a
domestic company, and thus changing of the nature of the domestic company into a foreign-invested enterprise; or when the foreign investors establish a
foreign-invested enterprise in China, purchase and operate the assets of a domestic company; or when the foreign investors purchase the assets of a
domestic company by agreement, establish a foreign-invested enterprise by injecting such assets, and operate the assets. According to Article 11 of the
M&A Rules, where a domestic enterprise, or a domestic natural person, through an overseas company established or controlled by it/him/her, acquires a
domestic enterprise which is related to or connected with it/him/her, approval from the MOFCOM is required. The M&A Rules, among other things,
further purport to require that an offshore special purpose vehicle, formed for listing purposes and controlled directly or indirectly by PRC companies or
individuals, shall obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle acquires shares of or equity interests in
the PRC companies in exchange for the shares of offshore companies.
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C.
Organizational Structure
The following diagram illustrates our corporate structure, including our significant subsidiaries and consolidated affiliated Chinese entities as of
December 31, 2020.
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
For further details about the indirect ownership of Qunar Cayman Islands Limited, see “Item 4.A. Information on the Company — History and Development of the Company.”
Indirectly owned through Ctrip Travel Holding, a Cayman Islands company, and its Hong Kong subsidiary, Ctrip Travel Holding (Hong Kong) Limited.
Indirectly owned through Ctrip Investment (Shanghai) Co., Ltd., a PRC company.
Indirectly owned through Queen’s Road Travel Information Limited, a Hong Kong company.
Min Fan and Qi Shi hold 99.5% and 0.5% of the equity interest in Chengdu Ctrip Travel Agency Co., Ltd., respectively.
Tao Yang and Maohua Sun hold 89.8% and 10.2% of the equity interest in Shanghai Ctrip Commerce Co., Ltd., respectively.
Hui Cao and Hui Wang hold 60% and 40% of the equity interest in Beijing Qu Na Information Technology Co., Ltd., respectively.
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We are a holding company incorporated in the Cayman Islands and rely on dividends from our subsidiaries in China and consulting and other fees
paid to our subsidiaries by our consolidated affiliated Chinese entities. We conduct a majority of our business through our wholly-owned subsidiaries in
China. Due to the current restrictions on foreign ownership of travel agency and value-added telecommunications businesses in China, we have
conducted part of our operations in these businesses through a series of contractual arrangements between our PRC subsidiaries and our consolidated
affiliated Chinese entities. Our significant consolidated affiliated Chinese entities included Ctrip Commerce, Shanghai Huacheng, Chengdu Ctrip, and
Qunar Beijing as of December 31, 2020. From time to time, we amended and restated the contractual arrangements that we had entered into with our
consolidated affiliated Chinese entities in order to further strengthen our ability to control these entities and receive substantially all of the economic
benefits from them. We have entered into additional contractual arrangements based on substantially the same series of amended and restated forms with
our other consolidated affiliated Chinese entities subsequent to our adoption of these forms, and plan to enter into substantially the same series of
agreements with all of our future consolidated affiliated Chinese entities. From 2015 to 2020, we further optimized the functions of our various
consolidated affiliated Chinese entities to avoid duplicative operations among these consolidated affiliated Chinese entities.
As of the date of this report, some of our directors and officers are principal record owners of our consolidated affiliated Chinese entities. Each of
them has signed an irrevocable power of attorney to appoint Ctrip Travel Information, Ctrip Travel Network, and Qunar or its designated person, as
attorney-in-fact to vote, by itself or any other person to be designated at its discretion, on all matters of our consolidated affiliated Chinese entities. Each
power of attorney will remain effective during the existence of the applicable consolidated affiliated Chinese entity.
D. Property, Plants and Equipment
Our principal place of business is located in Shanghai, China, where we own over 179,000 square meters of customer service center, principal
sales, marketing and development facilities, and administrative offices. We also own and occupy another customer service centers in Nantong, China
with a total floor area of 80,000 square meters.
As of February 28, 2021, we leased offices and data centers with an aggregate gross floor area of over 67,000 square meters.
ITEM 4.A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our
consolidated financial statements and their related notes included in this annual report on Form 20-F. This annual report contains forward-looking
statements. See “Item 5.G. Operating and Financial Review and Prospects — Safe Harbor.” In evaluating our business, you should carefully consider the
information provided under the caption “Item 3.D. Key Information — Risk Factors” in this annual report. We caution you that our businesses and
financial performance are subject to substantial risks and uncertainties.
A. Operating Results
We are a leading one-stop travel platform globally, integrating a comprehensive suite of travel products and services and differentiated travel
content. We are the go-to destination for travelers in China, and increasingly for travelers around the world, to explore travel and get inspired, to make
informed and cost-effective travel bookings, and to enjoy hassle-free, on-the-go support and share travel experience.
In 2020, we derived approximately 39%, 39%, 7%, 5%, and 10% of our total revenues from our accommodation reservation, transportation
ticketing, packaged tour, corporate travel, and other products and services, respectively.
In 2020, we generated our revenues primarily from the Greater China, based on the geographic location of our websites. See Notes 21 to our
audited consolidated financial statements included elsewhere in this annual report for further information. Also as part of our international strategy, we
consummated the acquisition transaction of the United Kingdom-based Skyscanner in December 2016 and maintained its independent management of
operations as part of the Trip.com Group to complement our positioning at a global scale.
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Major Factors Affecting Our Results of Operations
Economy and Travel Industry Trends
As a leading travel platform both in China and globally, our business is driven by the demand for travel services in our key markets, especially in
China, which primarily depends on the growth of the economy. Economic growth generally stimulates willingness to pay for travel services and their
affordability, thus helping increase travel frequency and spending.
We also benefit from certain other key trends in China’s travel industry that affect how and how often users choose to purchase travel services,
such as the increasing consumption potential in China’s rising middle class, user preference for diverse travel options and quality experience, the
booming demand for travel and high-quality user experience, and technology-driven enhancement in the travel industry supply chain.
Our business and results of operations can be adversely affected by disruptions in the travel industry, such as (i) the outbreaks of pandemics such
as COVID-19, epidemics, or fear of spread of contagious diseases, (ii) geopolitical uncertainty, political unrest, or civil strife, (iii) natural disasters or
poor weather conditions, such as hurricanes, earthquakes, or tsunamis, and (iv) any travel restrictions or other security procedures implemented in
connection with any major events in key markets. While we have demonstrated the resilience of our business model during the current COVID-19
pandemic, our financial condition, results of operations, and cash flows for 2020 were affected by the downturn in the travel industry and general
economy associated with the COVID-19 pandemic, and the impact may continue in subsequent periods. For details, see “—Impact of the COVID-19
Pandemic on Our Operations.”
Despite the setback in the global economy and travel industry in 2020 due to the COVID-19 pandemic, we expect the economy and travel industry
to resume growth in 2021 and beyond.
The depth and breadth of our travel offerings
Our results of operations depend on the effectiveness of our product and service offerings and our ability to broaden our offerings to appeal to
wider audience, which contributes to our GMV growth. We offer a comprehensive suite of travel products and services leveraging our network of
ecosystem partners. Our relationships with the expanding pool of ecosystem partners enable us to provide various selection of travel offerings from
budget to premium products and services, including long-tail and customized products, to satisfy the needs of our user base. In addition, we have been
upgrading our platform that connects us with domestic and international travel partners, search engines, e-commerce platforms, and other ecosystem
partners to expand our business opportunities.
Our financial performance is also affected by our product and service mix. Our products and services have different, sometimes contrasting, GMV
contribution and take rates. For example, transportation ticketing is relatively a low take rate service, while accommodation reservation is typically a
high take rate service. In addition, GMVs, take rates, and terms of travel products and service may vary depending on the specific ecosystem partners
providing them. Any material changes in our product and service mix could materially affect our results of operations.
Our ability to strengthen our brand recognition and maintain market leadership
We operate some of the most recognized travel brands. Our ability to strengthen our brand recognition and maintain our leading position among
the OTA platforms is critical for us to build and maintain relationships with our users and ecosystem partners. We have built a number of well-known
travel brands in China and globally, and have solidified our market leadership over the past two decades. In order to strengthen our brand recognition
and maintain market leadership, we may need to increase our investments in marketing activities, product and service development, and user and
ecosystem partner engagement, which may affect our operating margin.
Our market leading position and our ability to attract new users and continue to retain and engage our existing users also depends on our ability to
continue to provide users with superior experiences. For years, we have been consistently enhancing our technology, product, service, and content
offerings, and user interfaces to offer a personalized, convenient, enjoyable, and inspirational user experience. We have also been continuously catering
to our users’ diverse needs and evolving preferences.
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Our ability to enhance operating efficiency
Our results of operations have been, and will continue to be, affected by our ability to improve our operating efficiency, especially through
investment in technology. As our business continues to scale up, it is essential to improve operating efficiency to enhance the competitiveness of our
platform. For example, our big data and AI capabilities coupled with our travel insights accumulated throughout our operating history allow us to curate
suitable travel products and offer personalized recommendations to individual users, which enables significant cross-selling opportunities on our
platform. In addition, we apply various big data and AI technologies to achieve effective and precise marketing with reduced cost. In the future, we will
continue to invest in technology to further enhance our operations, which may increase our capital expenditure or operating costs but will improve our
operating and cost efficiency and service quality in the long run.
Seasonality
Our users generally come to our platform for travel products and services to satisfy their leisure and business trip needs. Therefore, our business is
subject to seasonal fluctuations, and our revenues may vary from quarter to quarter throughout a year. Since most of our users are from China, to date,
the third quarter of each year generally contributes the highest portion of our annual net revenues primarily due to the strong demand for both leisure
and business travel activities during the summer. Our future results may continue to be affected by such seasonal fluctuations.
Impact of COVID-19 on Our Operations
Our results of operations for the year ended December 31, 2020 have been significantly and negatively impacted by the COVID-19 pandemic. The
pandemic drove a significant decline in travel demand resulting in reservation cancelations and reduced new orders. In addition, the allowance for credit
losses and impairments of long-term investments both increased. In response to the COVID-19 pandemic, we have swiftly adopted cost control
measures to mitigate a significant slowdown in user demand. As the COVID-19 pandemic is still evolving, we will continuously review the provisions
for losses and make adjustment accordingly.
For the year ended December 31, 2020, our financial performance were materially and adversely affected as a result of the domestic and
international travel restrictions and significant incremental costs and expenses incurred to facilitate our users’ cancelations and refund requests. While
we have seen recovery in the China travel market since the second half of 2020 due to the substantial containment of the COVID-19 pandemic in China,
we have seen a slower recovery of the international travel market, and in turn, a slower recovery of our international business. In addition, we made
provisions for the expected difficulty in collection of receivables, which resulted in additional allowance for expected credit losses from the receivables
due from our customers, and significant downward adjustments and impairment to our long-term investments, as the impacts of the COVID-19
pandemic on certain of our long-term investments are considered to be other than temporary. In 2020, we recognized allowance for credit losses of
RMB700 million (US$107 million) and impairments of long-term investments of RMB905 million (US$139 million), compared to RMB191 million
and RMB205 million in the same period in 2019, respectively. As of December 31, 2020, our long-term investments consisted of debt investment of
RMB18.2 billion (US$2.8 billion) and equity investments of RMB29.7 billion (US$4.6 billion). Our net revenues for the year ended December 31, 2020
decreased by 49% from 2019. While the duration and the development of the pandemic is difficult to predict, our performance generally improved in the
third and fourth quarters of 2020 compared to the first two quarters of 2020, in terms of our key financial metrics such as revenues and gross margin,
and we have recorded net income in each of the third and fourth quarters of 2020, compared with net loss recorded in the first and second quarter of
2020, benefiting from the containment of the COVID-19 pandemic in China starting from the third quarter of 2020. Our GMV decreased by 51%, 72%,
51%, and 45% in the first, second, third, and fourth quarter of 2020, each comparing to the respective periods in 2019. In each of the third and fourth
quarters of 2020, we recorded a reversal of bad debt provisions for our travel ecosystem partners reflecting the improvement in credit risk profile with
domestic travel industry recovery. Since the third quarter of 2020, we have also seen reservations cancellation rate of users dropping back to a level prior
to the COVID-19 pandemic, which was substantially lower than the reservation cancellation rate in the first quarter of 2020. In each of the third and
fourth quarters of 2020, no significant impairment expense was recognized on our long-term investments.
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The global spread of COVID-19 pandemic in a significant number of countries around the world has resulted in, and may intensify, global
economic distress, and the extent to which it may affect our financial condition, results of operations, and cash flows will depend on future
developments, which are highly uncertain and cannot be reasonably predicted. Since the beginning of 2021, a few waves of COVID-19 infections have
emerged in various regions of China, and varying levels of travel restrictions were reinstated. In early 2021, precautionary measures, including varying
levels of travel restrictions and encouragement of reduced travel during the Chinese New Year, were reinstated in China. These travel restrictions reduce
users’ demand for our products, and are expected to materially and adversely affect our results of operations in the first quarter of 2021 and potentially
beyond. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Our Business and Industry—Pandemics (such as COVID-19), epidemics, or
fear of spread of contagious diseases could disrupt the travel industry and our operations, which could materially and adversely affect our business,
financial condition, and results of operations.”
Any future outbreak of contagious diseases or similar adverse public health developments, extreme unexpected bad weather, or severe natural
disasters would affect our business and operating results. Ongoing concerns regarding contagious disease or natural disasters, particularly its effect on
travel, could adversely affect our users’ desire to travel. If there is a recurrence of an outbreak of certain contagious diseases or natural disasters, travel
to and from affected regions could be curtailed. Public policy regarding, or governmental restrictions on, travel to and from these and other regions on
account of an outbreak of any contagious disease or occurrence of natural disasters could materially and adversely affect our business and operating
results.
Key Components of Our Results of Operations
Revenues
We generate our revenues primarily from the accommodation reservation and transportation ticketing businesses. The table below sets forth the
revenues from our principal lines of business as a percentage of our revenues for the periods indicated.
Year-Ended December 31,
2019
2018
2020
Revenues:
Accommodation reservation
Transportation ticketing
Packaged tours
Corporate travel
Others
Total revenues
37%
42%
12%
3%
6%
100%
38%
39%
13%
4%
6%
100%
39%
39%
7%
5%
10%
100%
Under most circumstances, we do not take ownership of the products and services being sold and act as an agent in substantially all of our
transactions. Our risk of loss due to obligations for canceled hotel and airline ticket reservations is thus relatively remote. Accordingly, we recognize
revenues primarily based on commissions earned rather than transaction value.
Since current PRC laws and regulations impose substantial restrictions on foreign ownership of travel agency and value-added
telecommunications businesses in China, we conduct part of our transportation ticketing and packaged-tour businesses through our consolidated
affiliated Chinese entities. Historically, we generated a portion of our revenues from fees charged to these entities. See “Item 7.B. Major Shareholders
and Related Party Transactions — Related Party Transactions — Arrangements with Consolidated Affiliated Chinese Entities” for a description of our
relationship with these entities.
Accommodation Reservation. Accommodation reservation revenue constitutes a significant source of our revenues. In 2018, 2019 and 2020,
revenues from our accommodation reservation business accounted for RMB11.6 billion, RMB13.5 billion and RMB7.1 billion (US$1.1 billion),
representing 37%, 38% and 39% of our total revenues, respectively.
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We generate substantially all of our accommodation reservation revenue through commissions from hotel reservation partners through our
platform. We recognize revenues when the reservation becomes non-cancellable, which is the point considered when we complete our performance
obligation in accommodation reservation services. Contracts with certain hotel reservation partners contain incentive commissions that are typically
subject to specific performance targets. We generally receive incentive commissions from hotels through monthly arrangements based on performance
targets of accommodation reservations where our users have completed their stay.
Transportation Ticketing. In 2018, 2019 and 2020, revenues from our transportation ticketing business accounted for RMB12.9 billion,
RMB14.0 billion and RMB7.1 billion (US$1.1 billion), representing 42%, 39% and 39% of our total revenues, respectively.
We operate our transportation ticketing business primarily through our wholly-owned subsidiaries, consolidated affiliated Chinese entities, and a
network of ecosystem partners. Commissions from transportation ticketing rendered are recognized after tickets are issued as this is when our
performance obligation is satisfied.
Packaged tours. Our packaged-tour business has grown rapidly in 2018 and 2019. In 2018, 2019 and 2020, our packaged-tour revenue was
RMB3.8 billion, RMB4.5 billion and RMB1.2 billion (US$190 million), respectively. We bundle the packaged-tour products and services and receive
referral fees from ecosystem partners for packaged-tour products and services through our platform. Referral fees are recognized on the departure date
of the packaged tours as this is when our performance obligation is satisfied.
Corporate Travel. Our corporate travel revenue primarily includes commissions from transportation ticket booking, accommodation reservation,
and packaged-tour services rendered to corporate clients. In 2018, 2019 and 2020, revenues from our corporate travel services accounted for
RMB981 million, RMB1.3 billion and RMB877 million (US$135 million), respectively. We contract with corporate clients based on a service fee
model. Travel reservations are made via online and offline services for transportation ticket booking, accommodation reservation, and packaged-tour
services. Corporate travel revenue is recognized on a net basis after the services are rendered and collections are reasonably assured.
Other Businesses. Our other businesses primarily consist of online advertising services and financial services. In 2018, 2019 and 2020, revenues
from other business accounted for RMB1.8 billion, RMB2.5 billion and RMB1.9 billion (US$296 million), respectively. We recognize advertising
revenue ratably over the fixed term of an agreement as services are provided, and we recognize the revenue from the financial services ratably over the
service period. The revenues from our financial services were primarily from our consumer financing services.
Cost of Revenues
Cost of revenues primarily consists of payroll compensation of customer service center personnel, credit card service fees, payments to ecosystem
partners, telecommunication expenses, direct cost of principal travel tour services, depreciation, rentals and related expenses incurred by our platform
that are directly attributable to the rendering of our travel-related services and other businesses.
Cost of revenues accounted for 20%, 21% and 22% of our net revenues in 2018, 2019 and 2020, respectively. We believe our relatively low ratio
of cost of revenues to revenues is primarily due to competitive labor costs in China, high efficiency of our customer service system and efficiency of our
enhanced website operations.
Operating Expenses
Operating expenses consist primarily of product development expenses, sales and marketing expenses and general and administrative expenses, all
of which include share-based compensation expense. In 2020, we recorded RMB1.9 billion (US$287 million) of share-based compensation expense,
compared to RMB1.7 billion for both 2018 and 2019. Share-based compensation expense is included in the same income statement category as the cash
compensation paid to the recipient of the share-based award.
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Product development expenses primarily include expenses that we incur to develop our ecosystem partner network and expenses that we incur to
maintain, monitor, and manage our platform. Product development expenses accounted for 31%, 30% and 42% of our net revenues in 2018, 2019 and
2020, respectively.
Sales and marketing expenses primarily include payroll compensation and benefits for our sales and marketing personnel, advertising expenses,
and other related marketing and promotion expenses. Our sales and marketing expenses accounted for 31%, 26% and 24% of our net revenues in 2018,
2019 and 2020, respectively.
General and administrative expenses primarily include payroll compensation, benefits and travel expenses for our administrative staff, credit
losses, professional service fees, and administrative office expenses. Our general and administrative expenses accounted for 9%, 9% and 20% of our net
revenues in 2018, 2019 and 2020, respectively.
Taxation
Our effective income tax rate was 41%, 19% and -29% for 2018, 2019 and 2020, respectively. The change in our effective income tax rate from
2019 to 2020 was mainly due to valuation allowances provided against the deferred tax assets associated with the accumulated loss, the non-deductible
share-based compensation expenses, the fair value changes in equity securities investments and exchangeable senior notes, as well as non-taxable gain
on deconsolidation of a subsidiary. The change in our effective income tax rate from 2018 to 2019 was mainly due to changes in the profitability of our
subsidiaries that have different tax rates, including certain non-taxable income of the fair value gains in equity securities investments in 2019 and certain
non-deductible expenses of the fair value losses in equity securities in 2018.
We are subject to various rates of income tax under different jurisdictions. The following summarizes major factors affecting our applicable tax
rates in the Cayman Islands, Hong Kong, and China.
Cayman Islands
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation, and there is no
taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman
Islands except for stamp duties, which may be applicable on instruments executed in, or brought within the jurisdiction of, the Cayman Islands. In
addition, the Cayman Islands does not impose withholding tax on dividend payments.
Hong Kong
On March 21, 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017, which introduces the
two-tiered profits tax rates regime. The bill was signed into law on March 28, 2018 and was gazetted on the following day. Under the two-tiered profits
tax rates regime, the first HK$2 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million will be taxed at
16.5%. The profits of group entities not qualifying for the two-tiered profits tax rates regime will continue to be taxed at a flat rate of 16.5%.
Accordingly, the Hong Kong profits tax of the qualifying group entity is calculated at 8.25% on the first HK$2 million of the estimated assessable
profits and at 16.5% on the estimated assessable profits above HK$2 million.
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China
Pursuant to the PRC Enterprise Income Tax Law, companies established in China are generally subject to enterprise income tax at a statutory rate
of 25%. The 25% rate applies to most of our subsidiaries and consolidated affiliated Chinese entities established in China. Some of our PRC subsidiaries
and consolidated affiliated Chinese entities, Ctrip Computer Technology, Ctrip Travel Information, Ctrip Travel Network, Qunar Software, Qunar
Beijing, Chengdu Ctrip, Chengdu Ctrip International, and Chengdu Information, benefit from a preferential tax rate of 15% by either qualifying as
HNTEs or qualifying under the Western Regions Catalog under the PRC Enterprise Income Tax Law as follows:
•
In 2020, Ctrip Computer Technology, Ctrip Travel Information, and Ctrip Travel Network reapplied for their qualification as HNTE, which
were approved by the relevant government authority. Thus, these subsidiaries are entitled to a preferential income tax rate of 15% from
2020 to 2022 as long as they maintained their qualifications for HNTEs that are subject to verification by competent authorities and
renewals every three years. Qunar Software and Qunar Beijing are also HNTEs entitled to a preferential income tax rate of 15% from 2018
to 2020 and are applying for renewal of their qualifications.
•
In 2001, the STA started to implement preferential tax policy in China’s western regions, and companies located in applicable jurisdictions
covered by the Western Regions Catalog are eligible to apply for a preferential income tax rate of 15% if their businesses fall within the
“encouraged” category of the policy. On April 23, 2020, the Ministry of Finance, the STA, and the NDRC jointly issued the
Announcement on Renewing the Enterprise Income Tax Policy for Western Development, which reduced the revenue percentage
requirement of the “encouraged” businesses to no less than 60% and would be applied from 2021 to 2030. Chengdu Ctrip, Chengdu Ctrip
International, and Chengdu Information are entitled to enjoy a preferential tax rate of 15% until 2030, provided that their “encouraged”
businesses account for no less than required percentage pursuant to current policies.
In 2018, 2019 and 2020, our subsidiaries in China received financial subsidies from the government authorities in the amount of approximately
RMB469 million, RMB589 million and RMB601 million (US$92 million), respectively, which we recorded as other income upon cash receipt. Such
financial subsidies were granted to us at the sole discretion of the government authorities. We cannot assure you that our subsidiaries will continue to
receive financial subsidies in the future.
Pursuant to the China’s VAT reform, from April 1, 2019 to December 31, 2021, general tax payers engaged in certain industries, including the
travel and entertainment industry, are allowed to claim an additional 10% or 15% super-credit on their input VAT (with the 15% rate applicable from
October 1, 2019). This super-credit amount can be deducted from VAT payable, and any remaining amount can be transferred to the next filing period
for credit.
If the PRC tax authorities determine that our Cayman Islands holding company is a “resident enterprise” for PRC enterprise income tax purposes,
a withholding tax of 10% may be imposed on dividends that non-PRC resident enterprise holders of our ordinary shares or ADSs receive from us and on
gains realized on their sale or other disposition of ordinary shares or ADSs, if such income is considered income derived from within China. See “Item
3.D. Key Information—Risk Factors—Risks Relating to Our Corporate Structure—Our subsidiaries and consolidated affiliated Chinese entities in China
are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.”
Critical Accounting Policies and Estimates
We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and liabilities on the date of the balance sheet and the reported amounts of revenues
and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available
information, our own historical experiences and various other assumptions that are believed to be reasonable under the circumstances, which together
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of
estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies
require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our
financial statements as their application places the most significant demands on management’s judgment.
Revenue Recognition. We describe our revenue recognition policies in our consolidated financial statements. We present substantially all of our
revenues on a net basis as the travel supplier is primarily responsible for providing the underlying travel services and we do not control the service
provided by the travel supplier to the traveler. Revenues are recognized on a gross basis where we undertake substantive inventory risks by
pre-purchasing inventories.
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On January 1, 2018, we adopted new revenue guidance ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The new
standard did not change the presentation of our revenues, which continues to be substantially reported on a net basis. However, the timing of revenue
recognition for certain revenue streams is changed under the new standard. In particular, revenue for accommodation reservation services, which used to
be recognized after end-users completed their stays, is now recognized when the reservation becomes non-cancellable. Revenue for packaged-tour
services, which used to be recognized when packaged tours were completed, is now recognized on the departure date of the tours.
Business Combination. We apply ASC 805 “Business Combination,” which requires that all business combinations not involving entities or
business under common control be accounted for under the acquisition method. The cost of an acquisition is measured as the aggregate of fair values at
the date of exchange of assets given, liabilities incurred and equity instruments issued. The costs directly attributable to the acquisition are expensed as
incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition
date, irrespective of the extent of any non-controlling interests. The excess of (i) the total of cost of acquisition, fair value of non-controlling interests
and acquisition date fair value of any previously held equity interest in an acquiree over (ii) the fair value of identifiable net assets of an acquiree is
recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of a subsidiary acquired, the difference is recognized directly in
the consolidated statements of comprehensive income.
Fair Value of Available-for-sale Debt Investments. We had available-for-sale debt investments as set out in Note 8 to our audited consolidated
financial statements included in elsewhere in this annual report. We report available-for-sale debt investments at fair value at each balance sheet date and
changes in fair value are reflected in the statements of income and comprehensive income. Management determined the fair value of these Level 3
investments based on income approach using various unobservable inputs. Valuation techniques are certified by an independent and recognized
international business valuer before being implemented for valuation and are calibrated to ensure that outputs reflect market conditions. Valuation
models established by the valuer make the maximum use of market inputs and rely as little as possible on our own specific data. However, it should be
noted that some inputs, such as revenue growth rate and lack of marketability discounts, require management estimates. Management estimates and
assumptions are reviewed periodically and are adjusted if necessary. Should any of the estimates and assumptions changed, it may lead to a change in
the fair value of available-for-sale debt investments. The fair values of the available-for-sale debt investments are set out in Note 7 to the audited
consolidated financial statements included elsewhere in this annual report.
In relation to the valuation of the available-for-sale debt investments, our directors, based on the professional advice received, adopted the
following procedures: (i) obtained and reviewed the capability statements and credentials provided by Avista and Duff&Phelps. Based on which, we
believe that both Avista and Duff&Phelps have significant experience and adequate expertise in valuation services and are therefore qualified to perform
our roles; (ii) provided the independent valuers with necessary financial and non-financial information as required so as to enable the valuers to perform
the pertinent valuation assessment. For the forecast of operation results and cash flow performances, we take a prudently reasonable approach as to
determine the significant estimates, including the revenue growth rate, and makes necessary adjustments on periodical basis to reflect the actual
development of the underlying business; (iii) keep frequent discussion with valuers and review their valuation work papers and reports. During which,
we carefully understand and evaluate the appropriateness and reasonableness of the overall valuation methodologies, computation basis, significant
assumptions and estimates therein, including weighted average cost of capital, lack of marketability discounts, expected volatilities and probabilities in
equity allocation; and (iv) review the results of the fair value assessments to understand the reasonableness of the changes of the fair values of the
investments. Based on the above procedures, our directors are of the view that the valuation analysis performed by the valuer is fair and reasonable, and
the financial statements of our group are properly prepared.
Details of the fair value measurement of available-for-sale debt investments, particularly the fair value hierarchy, the valuation techniques and key
inputs, including significant unobservable inputs, the relationship of unobservable inputs to fair value are disclosed in Note 8 of the audited consolidated
financial statements included elsewhere in this annual report.
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Investment. Our investments include equity method investments, equity securities without readily determinable fair values, equity securities with
readily determinable fair values, held to maturity debt securities, and available-for-sale debt securities. We apply equity method in accounting for the
investments in entities in which we have the ability to exercise significant influence but do not have control and the investments are in either common
stock or in-substance common stock. Unrealized gains on transactions between an affiliated entity and us are eliminated to the extent of our interest in
the affiliated entity; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Equity
securities without readily determinable fair values are measured and recorded using a measurement alternative that measures the securities at cost minus
impairment, if any, plus or minus changes resulting from qualifying observable price changes. Equity securities with readily determinable fair values are
measured and recorded at fair value on a recurring basis with changes in fair value, whether realized or unrealized, recorded through the income
statement. Debt securities that we have positive intent and ability to hold to maturity are classified as held-to-maturity debt securities and are stated at
amortized cost.
We have classified our investments in debt securities, other than the held to maturity debt securities, as available-for-sale securities.
Available-for-sale debt securities are reported at estimated fair value with the aggregate unrealized gains and losses, net of tax, reflected in
“Accumulated other comprehensive loss” in the consolidated balance sheets. If the amortized cost basis of an available-for-sale security exceeds its fair
value and if we have the intention to sell the security or it is more likely than not that our will be required to sell the security before recovery of the
amortized cost basis, an impairment is recognized in the consolidated statements of operations. If we do not have the intention to sell the security and it
is not more likely than not that we will be required to sell the security before recovery of the amortized cost basis and we determines that the decline in
fair value below the amortized cost basis of an available-for-sale security is entirely or partially due to credit-related factors, the credit loss is measured
and recognized as an allowance for credit losses along with the operating expense in the consolidated statements of operations. The allowance is
measured as the amount by which the debt security’s amortized cost basis exceeds our best estimate of the present value of cash flows expected to be
collected.
We monitor our investments for other-than-temporary impairment by considering factors including, but not limited to, current economic and
market conditions, the operating performance of the companies including current earnings trends and other company-specific information. In light of the
global spread of the COVID-19 pandemic and potentially prolonged decline of share prices of publicly traded companies in which we have invested,
which is considered one of the indicators of impairment on our investments that are not measured at fair values, we may need to recognize significant
downward adjustments or impairment to our investments if the impacts from the COVID-19 pandemic become other than temporary.
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Goodwill, Intangible Assets and Long-Lived Assets. Goodwill represents the excess of the purchase price over the fair value of the identifiable
assets and liabilities acquired as a result of our acquisitions of interests in its subsidiaries and consolidated affiliated Chinese entities. Goodwill is not
amortized but is reviewed at least annually for impairment or earlier, if an indication of impairment exists. Recoverability of goodwill is evaluated using
a two-step process. In the first step, the fair value of a reporting unit is compared to its carrying value. If the fair value of a reporting unit exceeds the
carrying value of the net assets assigned to a reporting unit, goodwill is considered not impaired and no further testing is required. If the carrying value
of the net assets assigned to a reporting unit exceeds the fair value of a reporting unit, the second step of the impairment test is performed in order to
determine the implied fair value of a reporting unit’s goodwill. Determining the implied fair value of goodwill requires valuation of a reporting unit’s
tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. If the carrying value of a
reporting unit’s goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to the extent of the difference. We estimate
total fair value of the reporting unit using discounted cash flow analysis, and makes assumptions regarding future revenue, gross margins, working
capital levels, investments in new products, capital spending, tax, cash flows, and the terminal value of the reporting unit. Starting in 2020, we adopted
the FASB issued ASU 2017-04: Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. To simplify the
subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Under the amendments in this Update, an entity
should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity
should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss
recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the amendments in this Update on a
prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. It is more likely that,
by adopting simplified measurement which eliminates the Step 2 from goodwill impairment test, an entity with the triggering event for goodwill
impairment will recognize more goodwill impairment than it would do under the old mode. Separately identifiable intangible assets that have
determinable lives continue to be amortized and consist primarily of non-compete agreements, customer list, supplier relationship, technology and
business relationship. We amortize intangible assets on a straight-line basis over their estimated useful lives, which is 3 to 15 years. The estimated life of
amortized intangibles is reassessed if circumstances occur that indicate the life has changed. Other intangible assets that have indefinite useful life
primarily include trademark and domain names. We evaluate indefinite-lived intangible assets each reporting period to determine whether events and
circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite
useful life, the asset is tested for impairment. We estimate total fair value of the reporting unit using discounted cash flow analysis, and makes
assumptions regarding future revenue, gross margins, working capital levels, investments in new products, capital spending, tax, cash flows, and the
terminal value of the reporting unit. Long-lived assets (including intangible with definite lives) are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Reviews are performed to determine whether the carrying value
of asset group is impaired, based on comparison to undiscounted expected future cash flows. If this comparison indicates that there is impairment, we
recognize impairment of long-lived assets to the extent the carrying amount of such assets exceeds the fair value. In 2018, 2019 and 2020, we did not
recognize any impairment charges for goodwill or intangible assets. If different judgments or estimates had been utilized, however, material differences
could have resulted in the amount and timing of the impairment charge. We may potentially incur significant impairment charges if the recoverability of
these assets become substantially reduced in the future. Any such impairment charges would adversely affect our financial condition and results of
operations. In addition, in the case that the trading prices of our ADSs decline as a result of the potentially prolonged impacts from the COVID-19
pandemic or other factors, and the amount by which the share price exceeded the carrying value of the reporting unit becomes minimal, it may be
considered an indicator for us to perform goodwill impairment test and we may need to recognize impairment on goodwill or other long lived assets.
Rewards Program. We offer a rewards program that allows our users to participate in a loyalty points program. The points awarded from services
can be redeemed for cash or used to purchase gifts on our website and mobile platforms. The estimated incremental costs of the loyalty points program
are recognized as sales and marketing expense, or as reduction of the revenue, depending on whether they can be redeemed to gifts or used as cash, and
accrued for as a current liability. As members redeem awards or their entitlements expire, the accrued liability is reduced correspondingly. As of
December 31, 2019 and 2020, our accrued liability for the rewards program were approximately RMB478 million and RMB478 million (US$73
million), respectively, based on the estimated liabilities under the rewards program.
Share-Based Compensation. We follow ASC 718 “Stock Compensation,” using the modified prospective method. Under the fair value recognition
provisions of ASC 718, we recognize share-based compensation net of an estimated forfeiture rate and therefore only recognize compensation cost for
those shares expected to vest over the service period of the award. Under ASC 718, we applied the Black-Scholes valuation model in determining the
fair value of options granted. Risk-free interest rates are based on US Treasury yield for the terms consistent with the expected life of award at the time
of grant. Expected life is based on historical exercise patterns. Expected dividend yield is determined in view of our historical dividend payout rate and
future business plan. We estimate expected volatility at the date of grant based on historical volatilities. We recognize compensation expense on all
share-based awards on a straight-line basis over the requisite service period. Forfeiture rate is estimated based on historical forfeiture patterns and
adjusted to reflect future change in circumstances and facts, if any. If actual forfeitures differ from those estimates, we may need to revise those
estimates used in subsequent periods. According to ASC 718, a change in any of the terms or conditions of stock options shall be accounted for as a
modification of the plan. Therefore, we calculate incremental compensation cost of a modification as the excess of the fair value of the modified option
over the fair value of the original option immediately before its terms are modified, measured based on the share price and other pertinent factors at the
modification date. For vested options, we would recognize incremental compensation cost in the period the modification occurs and for unvested
options, we would recognize, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized
compensation cost for the original award on the modification date.
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On November 23, 2007, our board of directors declared a dividend of one ordinary share purchase right for each of our ordinary shares
outstanding at the close of business on December 3, 2007. The shareholder rights agreement is placed to discourage unfriendly or unauthorized takeover
attempts, and is considered as a dividend from accounting perspective. The exercisable condition of the ordinary share purchase right is the
accumulation of a significant percentage of our total outstanding shares by certain shareholders upon the occurrence of exercisable condition, the
issuance of rights to eligible shareholders on a pro rata basis will be accounted for as a dividend with the offsetting entry recorded to additional paid in
capital. As of December 31, 2020, the exercisable condition of the shareholder rights had not been met.
Leases. We began to apply ASC 842, “Leases,” on January 1, 2019 on a modified retrospective basis and has elected not to recast comparative
periods. We determine if an arrangement is a lease at inception. Operating leases are primarily for office and operation space and are included in ROU
assets, other payables and accruals, and long-term lease liabilities on our consolidated balance sheets. ROU assets represent our right to use an
underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. The operating lease ROU
assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. As most of our leases
do not provide an implicit rate, we use our incremental borrowing rate based on the information available at lease commencement date in determining
the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease
terms may include options to extend or terminate the lease. Renewal options are considered within the ROU assets and lease liability when it is
reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For
operating leases with a term of one year or less, we have elected to not recognize a lease liability or ROU asset on our consolidated balance sheet.
Instead, we recognize the lease payments as expense on a straight-line basis over the lease term. Short-term lease costs are immaterial to our
consolidated statements of operations and cash flows. We have operating lease agreements with insignificant non-lease components and have elected the
practical expedient to combine and account for lease and non-lease components as a single lease component.
Deferred Tax Valuation Allowances. We provide a valuation allowance on our deferred tax assets to the extent we consider it to be more likely
than not that we will be unable to realize all or part of such assets. Our future realization of our deferred tax assets depends on many factors, including
our ability to generate taxable income within the period during which temporary differences reverse or before our tax loss carry-forwards expire, the
outlook for the Chinese economy and overall outlook for our industry. We consider these factors at each balance sheet date and determine whether
valuation allowances are necessary. As of December 31, 2018, 2019 and 2020, we recorded deferred tax assets of RMB850 million, RMB976 million
and RMB1.4 billion (US$214 million), respectively. If, however, unexpected events occur in the future that would prevent us from realizing all or a
portion of our net deferred tax assets, an adjustment would result in a charge to income in the period in which such determination was made. As of
December 31, 2018, 2019 and 2020, it is more likely than not that the deferred tax assets resulting from the net operating losses of certain subsidiaries
will not be realized. Hence, we recorded valuation allowance against our gross deferred tax assets in order to reduce the deferred tax assets to the
amount that is more likely than not to be realized. Also, we have elected to early adopt a new accounting guidance issued by the FASB to simplify the
presentation of deferred income taxes on the Balance Sheet Classification. Starting December 31, 2015 and prospectively, deferred tax assets and
liabilities, along with related valuation allowances are classified as noncurrent on the balance sheet.
Allowance for Expected Credit Losses. On January 1, 2020, we adopted the accounting standards update on the measurement of credit losses,
which requires us to estimate lifetime expected credit losses upon recognition of the financial assets. We adopted the accounting standards update using
a modified retrospective approach. Upon adoption of the new standard on January 1, 2020, we recorded a net decrease to our retained earnings of
RMB83 million, net of tax.
Our accounts receivable, prepayments and other current assets (including the receivables of financial services), due from related parties, long-term
deposits and prepayments and long-term receivables due from related parties are within the scope of ASC Topic 326. We have identified the relevant
risk characteristics of our customers and the related receivables and prepayments, which include size, type of the reservation services we provide or
geographic location of the customer, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into
pools. For each pool, we consider the historical credit loss experience, current economic conditions, supportable forecasts of future economic conditions,
and any recoveries in assessing the lifetime expected credit losses. Other key factors that influence the expected credit loss analysis include customer
demographics, payment terms offered in the normal course of business to customers, and industry-specific factors that could impact our receivables.
Additionally, external data and macroeconomic factors are also considered. This is assessed at each quarter based on our specific facts and
circumstances.
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In 2020, we facilitated and processed significant volume of the reservation cancelation requests from the end users due to the COVID-19
pandemic which resulted in the significant increase of the accounts receivables due from the customers (i.e. the travel suppliers) as a result of the
refunds we paid the end users on behalf of our customers and will collect from our customers. Given the business disruptions and financial challenges
faced by our customers as driven by the COVID-19 pandemic, we have further analyzed the credit risks of our customers with the considerations
including the recent credit losses, repayment pattern and business conditions and has increased our allowance for expected credit losses on receivables
from and prepayments to our customers. Such analysis was performed based on individual customer’s level or a group of customers’ level depends on
the amount and extent of overdue as well as the risk characteristics of the different customers.
Significant judgments and assumptions are required to estimate the allowance for expected credit losses on receivables from and prepayments to
customers and such assumptions may change in future periods, particularly the assumptions related to the impact of the COVID-19 pandemic on the
business prospects and financial condition of customers and our ability to collect the receivable or recover the prepayment. As of December 31, 2018,
2019 and 2020, the allowance for expected credit losses was RMB156 million, RMB256 million and RMB799 million (US$122 million), respectively.
The increase of allowance for expected credit losses in 2020 was primarily attributable to the increased receivables mainly due to the refunds for
reservation cancelations that we paid on behalf our ecosystem partners that are subject to the increased credit risks as a result of the COVID-19
pandemic.
Results of Operations
The following table sets forth a summary of our consolidated statements of operations for the periods indicated both in amount and as a
percentage of net revenues.
For the Year Ended December 31,
2018
RMB
%
2019
RMB
%
(in millions)
2020
RMB
US$
%
Revenues:
Accommodation reservation
Transportation ticketing
Packaged tours
Corporate travel
Others
Total revenues
Less: Sales tax and surcharges
Net revenues
Cost of revenues
Gross profit
Operating expenses:
Product development(1)
Sales and marketing(1)
General and administrative(1)
Total operating expenses
Income/(loss) from operations
Interest income
Interest expense
3 1,255
6 2,461
11,580 37 13,514 38 7,132 1,093 39
12,947 42 13,952 39 7,146 1,095 39
7
3,772 12 4,534 13 1,241
190
135
4
5
877
981
1,824
296 10
6 1,931
31,104 100 35,716 100 18,327 2,809 100
(0)
30,965 100 35,666 100 18,316 2,807 100
(6,324) (20) (7,372) (21) (4,031)
(618) (22)
24,641 80 28,294 79 14,285 2,189 78
(139)
(50)
(11)
(2)
(0)
(0)
(9) (3,289)
(9,620) (31) (10,670) (30) (7,667) (1,175) (42)
(675) (24)
(9,596) (31) (9,295) (26) (4,405)
(2,820)
(557) (20)
(9) (3,636)
(22,036) (71) (23,254) (65) (15,708) (2,407) (86)
(8)
(218)
9 5,040 14 (1,423)
2,605
335 12
6 2,187
6 2,094
1,899
(9)
(263)
(5) (1,716)
(5) (1,677)
(1,508)
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For the Year Ended December 31,
2018
RMB
%
2019
RMB
%
(in millions)
RMB
2020
US$
%
Other (expense)/income
Income/(loss) before income tax expense and equity in loss of affiliates
Income tax expense
Equity in loss of affiliates
Net income/(loss)
Net loss attributable to non-controlling interests
Accretion to redemption value of redeemable non-controlling interests
Net income/(loss) attributable to Trip.com Group Limited
(3) 3,630 10
(273) (42) (1)
(1,075)
7 9,087 25 (1,225) (188) (6)
1,921
(3) (1,742) (5)
(355) (54) (2)
(793)
(0)
(347) (1) (1,689) (259) (9)
(32)
4 6,998 19 (3,269) (501) (17)
1,096
62 10 0
16
0
— —
(6) (0)
(40)
4 7,011 19 (3,247) (497) (17)
1,112
57 0
(44) (0)
Note:
(1)
Share-based compensation was included in the associated operating expense categories as follows:
For the Year Ended December 31,
Product development
Sales and marketing
General and administrative
(934)
(156)
(617)
(3)
(1)
(2)
2018
2019
RMB
%
RMB
RMB
2020
US$
%
%
(in millions)
(3)
(0)
(2)
(919)
(144)
(651)
(964)
(159)
(750)
(148)
(24)
(115)
(5)
(1)
(4)
Any discrepancies in the above table between the amounts or percentages identified as total amounts or percentages and the sum of the amounts or
percentages listed therein are due to rounding.
2020 compared to 2019
Revenues
Total revenues decreased by 49% to RMB18.3 billion (US$2.8 billion) in 2020 from RMB35.7 billion in 2019, primarily due to the negative
impact from the COVID-19 pandemic in China and globally.
Accommodation Reservation. Accommodation reservation revenue decreased by 47% to RMB7.1 billion (US$1.1 billion) in 2020 from
RMB13.5 billion in 2019, primarily due to the decrease in the accommodation reservation GMV facilitated by our platform in 2020 by 47% as a result
of the reduction in the traveling demand of our Chinese and international users due to the COVID-19 pandemic in China and globally.
Transportation Ticketing. Transportation ticketing revenue decreased by 49% to RMB7.1 billion (US$1.1 billion) in 2020 from RMB14.0 billion
in 2019, primarily due to the decrease in the transportation ticketing GMV facilitated by our platform in 2020 by 57% as a result of the reduction in the
traveling demand of our Chinese and international users due to the COVID-19 pandemic in China and globally.
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Packaged tours. Packaged tours revenues decreased by 73% to RMB1.2 billion (US$190 million) in 2020 from RMB4.5 billion in 2019, primarily
due to the cross-region travel restrictions in China and global in response to the COVID-19 pandemic.
Corporate Travel. Corporate travel revenues decreased by 30% to RMB877 million (US$135 million) in 2020 from RMB1.3 billion in 2019,
primarily due to the decrease in the travel demand for our corporate clients as a result of the COVID-19 pandemic.
Others. Other revenues decreased by 22% to RMB1.9 billion (US$296 million) in 2020 from RMB2.5 billion in 2019, primarily due to the
decrease in the advertising revenue primarily due to weakness in online advertising demand as our advertising clients, including our ecosystem partners,
were negatively impacted by the COVID-19 pandemic.
Cost of Revenues
Cost of revenues decreased by 45% to RMB4.0 billion (US$618 million) in 2020 from RMB7.4 billion in 2019, which was in line with the
revenue decrease in the same year.
Operating Expenses
Operating expenses include product development expenses, sales and marketing expenses, and general and administrative expenses.
Product Development. Product development expenses decreased by 28% to RMB7.7 billion (US$1.2 billion) in 2020 from RMB10.7 billion in
2019, primarily due to a decrease in product development personnel related expenses.
Sales and Marketing. Sales and marketing expenses decreased by 53% to RMB4.4 billion (US$675 million) in 2020 from RMB9.3 billion in
2019, primarily due to a decrease in sales and marketing related activities during the COVID-19 pandemic.
General and Administrative. General and administrative expenses increased by 11% to RMB3.6 billion (US$557 million) in 2020 from
RMB3.3 billion in 2019, primarily due to credit losses for the increased receivables mainly attributable to the refunds for reservation cancelations that
we paid on behalf of our ecosystem partners that are subject to the increased credit risk as a result of the COVID-19 pandemic.
Interest Income
Interest income increased by 4% to RMB2.2 billion (US$335 million) in 2020 from RMB2.1 billion in 2019, primarily due to an increase in short-
term investments, held to maturity deposits and financial products in 2020.
Interest Expense
Interest expense increased by 2% to RMB1.7 billion (US$263 million) in 2020 from RMB1.7 billion in 2019, primarily due to fluctuation in the
principal amount of both short-term and long-term debt in 2020.
Other Income/(Expense)
Other expense was RMB273 million (US$42 million) in 2020, compared to other income of RMB3.6 billion in 2019, primarily due to the
RMB612 million (US$94 million) fair value loss of equity securities investments and exchangeable senior notes for the year ended December 31, 2020
and the RMB2.3 billion fair value gain of equity securities investments for the year ended December 31, 2019.
Income Tax Expense
Income tax expense decreased significantly to RMB355 million (US$54 million) in 2020 from RMB1.7 billion in 2019, primarily due to a
decrease in our taxable income.
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Equity in Loss of Affiliates
Equity in loss of affiliates increased significantly to RMB1.7 billion (US$259 million) in 2020 from RMB347 million in 2019, primarily due to
the losses incurred from our equity method investments, mainly in MakeMyTrip, whose operating results were significantly impacted by the COVID-19
pandemic.
2019 compared to 2018
Revenues
Total revenues were RMB35.7 billion in 2019, an increase of 15% over RMB31.1 billion in 2018. This revenues growth was primarily due to our
brands’ extensive reach and expansion in our product portfolio.
Accommodation Reservation. Revenues from our accommodation reservation business increased by 17% to RMB13.5 billion in 2019 from
RMB11.6 billion in 2018, primarily due to an increase in the GMV of our accommodation reservation business by 16% in 2019, compared to 2018,
resulting from our brands’ extensive reach and provision of diversified accommodation choices to prospective customers.
Transportation Ticketing. Revenues from our transportation ticketing business increased by 8% to RMB14.0 billion in 2019 from
RMB12.9 billion in 2018, primarily due to an increase in the GMV of our transportation ticketing business by 13% in 2019, compared to 2018, resulting
from an increase in demands for international air tickets and ground transportation tickets.
Packaged tours. Packaged tours revenues increased by 20% to RMB4.5 billion in 2019 from RMB3.8 billion in 2018, primarily due to an increase
in demands for organized tours and self-guided tours and our further penetration in lower-tier cities in China.
Corporate Travel. Corporate travel revenues increased by 28% to RMB1.3 billion in 2019 from RMB981 million in 2018, primarily due to
expansion in corporate customer base and travel product coverage.
Other Businesses. Revenues from other businesses increased by 35% to RMB2.5 billion in 2019 from RMB1.8 billion in 2018, primarily due to a
strong growth in our advertisement services and an increase in demands for financial services.
Cost of Revenues
Cost of revenues in 2019 increased by 17% to RMB7.4 billion from RMB6.3 billion in 2018, primarily due to an increase in credit card service
fee, customer service related expenses and payments to travel suppliers for the service we had control.
Operating Expenses
Operating expenses include product development expenses, sales and marketing expenses, and general and administrative expenses.
Product Development. Product development expenses increased by 11% to RMB10.7 billion in 2019 from RMB9.6 billion in 2018, primarily due
to an increase in product development personnel related expenses.
Sales and Marketing. Sales and marketing expenses decreased by 3% to RMB9.3 billion in 2019 from RMB9.6 billion in 2018, primarily
attributable to a decrease in sales and marketing related activities. Our advertising expenses decreased from RMB6.0 billion in 2018 to RMB5.5 billion
in 2019.
General and Administrative. General and administrative expenses increased by 17% to RMB3.3 billion in 2019 from RMB2.8 billion in 2018,
primarily due to an increase in general and administrative personnel related expenses and allowance for doubtful accounts.
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Interest Income
Interest income increased by 10% to RMB2.1 billion in 2019 from RMB1.9 billion in 2018 due to an increase in held to maturity deposits and
financial products in 2019.
Interest Expense
Interest expense increased by 11% to RMB1.7 billion in 2019 from RMB1.5 billion in 2018 due to fluctuation in the principal amount of both
short-term and long-term debt in 2019.
Other (Expense)/Income
Other income was RMB3.6 billion in 2019 while other expense was RMB1.1 billion in 2018, primarily due to the RMB2.3 billion fair value gain
of equity securities investments in 2019 and the RMB3.1 billion fair value loss of equity securities investments in 2018, largely offset by
RMB1.2 billion gain on disposal of long-term investments.
Income Tax Expense
Income tax expense was RMB1.7 billion in 2019, an increase of 120% over RMB793 million in 2018, primarily due to the increase in our taxable
income. Our effective income tax rate in 2019 was 19%, as compared to 41% in 2018. The change in our effective income tax rate from 2018 to 2019
was primarily due to combined impacts from change in profitability, changes in the profits of our subsidiaries with different tax rates, certain
non-taxable income of the fair value changes in equity securities investments, and certain non-deductible expenses from the fair value changes in equity
securities investments.
Equity in Loss of Affiliates
Equity in loss of affiliates is RMB347 million in 2019, as compared with equity in loss of affiliates of RMB32 million in 2018. This is primarily
attributable to the losses incurred from our equity method investments.
Inflation
Inflation in China has not materially impacted our results of operations. According to NBS, the year-over-year percent changes in the consumer
price index for December 2018, 2019 and 2020 were increases of 1.9%, 4.5% and 0.2%, respectively. Inflation in recent years has been associated with
food and other consumption items and minimum wages in China. Consumption items do not represent major direct cost items for our business. While
personnel costs represent a material part of our total operating costs and expenses, inflation in minimum wages in China primarily affects certain
categories of our non-managerial staff costs while increases in total personnel costs of our business remain manageable. Although we have not been
materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China.
B. Liquidity and Capital Resources
Liquidity
The following table sets forth the summary of our cash flows for the periods indicated:
Net cash provided by/(used in) operating activities
Net cash used in investing activities
Net cash provided by/(used in) financing activities
Effect of foreign exchange rate changes on cash and cash equivalents, restricted cash
Net increase/(decrease) in cash and cash equivalents, restricted cash
Cash and cash equivalents, restricted cash, beginning of year
Cash and cash equivalents, restricted cash, end of year
79
For the Year Ended December 31,
2020
RMB
2019
RMB
2018
US$
RMB
7,115 7,333 (3,823) (588)
(14,078) (2,413) (3,821) (584)
11,926 (9,256) 6,025 923
(713) (109)
309
5,782 (4,027) (2,332) (358)
19,992 25,774 21,747 3,333
25,774 21,747 19,415 2,975
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Net cash used in operating activities amounted to RMB3.8 billion (US$588 million) in 2020, which was primarily attributable to (i) our net loss of
RMB3.3 billion (US$501 million) in 2020, (ii) a decrease in accounts payable of RMB7.8 billion (US$1.2 billion) in 2020, mainly due to a decrease in
new bookings of hotel, transportation ticketing, and packaged-tour services during the COVID-19 pandemic, which were exceeded by settlement, (iii) a
decrease in advances from customers of RMB4.1 billion (US$624 million), mainly due to a decrease in demand for packaged tours, transportation
ticketing, and accommodation services, (iv) a decrease in salary and welfare payable of RMB1.3 billion (US$202 million), mainly due to a decrease in
personnel related expenses , (v) a decrease in other payables and accruals of RMB1.3 billion (US$199 million), mainly due to a decrease in accrued
operating related expenses, and (vi) the gain on deconsolidation of subsidiaries of RMB1.1 billion (US$167 million). The foregoing were partially offset
by (i) an add-back of RMB4.1 billion (US$633 million) in non-cash expense or loss items, mainly relating to share-based compensation expenses,
depreciation and amortization expenses, allowance for credit losses, and amortization of ROU assets; (ii) a decrease in prepayments and other current
assets of RMB3.8 billion (US$588 million), mainly due to a decrease in prepayment for packaged tours and accommodation services; (iii) a decrease in
accounts receivable of RMB3.2 billion (US$489 million), mainly due to a decrease of corporate travel management services and credit card payments
from our individual users for transportation ticket booking; (iv) the equity in loss of affiliates of RMB1.7 billion (US$259 million) mainly in
MakeMyTrip; (v) the impairments of long-term investment of RMB905 million (US$139 million); (vi) a decrease in due from related parties of
RMB821 million (US$126 million). Our operating cash flow results in 2020 were adversely impacted as a result of the COVID-19 pandemic.
Net cash provided by operating activities amounted to RMB7.3 billion in 2019, which was primarily attributable to (i) our net income of
RMB7.0 billion in 2019; (ii) an add-back of RMB3.9 billion in non-cash expense or loss items, mainly relating to share-based compensation expenses,
depreciation and amortization expenses, and amortization of ROU assets; (iii) an increase in advances from customers of RMB2.2 billion, mainly due to
an increase in demand for packaged tours, transportation ticketing, and accommodation services; (iv) an increase in other payables and accruals of
RMB1.2 billion, mainly due to an increase in accrued operating related expenses; (v) an increase in salary and welfare payable of RMB1.1 billion,
mainly due to an increase in personnel related expenses; and (vi) an increase in accounts payable of RMB540 million, mainly due to an increase in hotel,
transportation ticketing, and packaged-tour services, as we are generally entitled to certain credit terms from our suppliers. These increases were
partially offset by (i) changes in fair value for equity investments measured at fair value of RMB2.3 billion; (ii) an increase in prepayments and other
current assets of RMB2.2 billion, mainly due to an increase in prepayment for packaged tours, transportation ticketing, and accommodation services;
(iii) an increase in accounts receivable of RMB2.0 billion, mainly due to an increase of corporate travel management services, hotels, and credit card
payments from our individual customers for transportation ticket booking; (iv) an increase in due from related parties of RMB1.1 billion; (v) the gain on
disposal and settlement of long-term investment of RMB921 million.
Net cash provided by operating activities amounted to RMB7.1 billion in 2018, which was primarily attributable to (i) our net income of
RMB1.1 billion in 2018; (ii) an add-back of RMB6.0 billion in non-cash expense/loss items, primarily relating to share-based compensation expenses,
depreciation expenses and changes in fair value for equity investments measured at fair value; (iii) an increase in accounts payable of RMB3.7 billion,
primarily due to an increase in volume of hotel, transportation ticketing and packaged-tour services, as we are generally entitled to certain credit terms
from our suppliers; (iv) an increase in advances from customers of RMB1.3 billion, primarily due to an increase in demand for packaged tours, ticketing
and accommodation services; and (v) an increase in other payable and accruals of RMB914 million primarily due to the increase in accrued advertising
expenses. These increases were partially offset by (i) an increase in prepayments and other current assets of RMB2.0 billion, primarily due to an
increase in prepayment for packaged tours, ticketing and accommodation services; (ii) an increase in due from related parties of RMB1.3 billion; (iii) the
gain on disposal of long-term investment of RMB1.2 billion; and (iv) an increase in accounts receivable of RMB704 million, primarily due to an
increase of volume of corporate travel management services and credit card payments from our individual customers for transportation ticket booking.
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Under PRC laws and regulations, our subsidiaries are required to set aside at least 10% of their respective after-tax profits each year, if any, to
statutory reserve funds, unless such reserve funds have reached 50% of their respective registered capital. These reserve funds are not distributable as
cash dividends and dividends cannot be distributed until any losses from prior fiscal years have been offset. See “Item 3.D. Key Information — Risk
Factors — Risks Relating to Our Corporate Structure — Our subsidiaries and consolidated affiliated Chinese entities in China are subject to restrictions
on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.”
Net cash used in investing activities amounted to RMB3.8 billion (US$584 million) in 2020, compared to net cash used in investing activities of
RMB2.4 billion in 2019 and RMB14.1 billion in 2018. This increase in 2020 was primarily due to an increase in cash paid for long-term investments
which was offset by the fluctuations of short-term investments. And the decrease in 2019 was primarily due to a decrease in short-term investments.
Net cash provided by financing activities amounted to RMB6.0 billion (US$923 million) in 2020, compared to net cash used in financing
activities of RMB9.3 billion in 2019, and net cash provided by financing activities of RMB11.9 billion in 2018. We did not make any dividend payment
in 2018, 2019 and 2020. Net cash flow in financing activities in 2020 was mainly due to the cash proceeds from short-term loan, long-term loans and
Exchangeable Senior Notes, which were offset by the cash redemption with respect to the 2020 Notes and cash put redemption for the 2025 Notes.
Capital Resources
As of December 31, 2020, our principal sources of liquidity have been cash generated from operating activities, borrowings from third-party
lenders, as well as the proceeds we received from our public offerings of ordinary shares and our offerings of convertible senior notes. Our cash and
cash equivalents consist of cash on hand and liquid investments which are unrestricted as to withdrawal or use. Our financing activities consist of
issuance and sale of our ordinary shares, convertible senior notes and exchangeable senior notes to investors and related parties and borrowings from
third-party lenders. As of the date of this annual report, we had convertible senior notes outstanding in an aggregate principal amount of US$1.1 billion,
exchangeable senior notes outstanding in an aggregate principal amount of US$500 million and three facilities loan outstanding under which the
aggregate outstanding principal balance was US$2.8 billion.
Except as disclosed in this annual report, we have no outstanding bank loans or financial guarantees or similar commitments to guarantee the
payment obligations of third parties. The COVID-19 pandemic had material and adverse impacts on our cash flow in 2020 with potential continuing
impacts on subsequent periods. However, based on our liquidity assessment, we believe that our cash flow from operations and proceeds from our
financing activities will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for the
foreseeable future and for at least 12 months subsequent to the filing of this annual report. We may, however, require additional cash resources due to
changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. See also “Item 3.D. Key
Information — Risk Factors — Risks Relating to Our Business and Industry — Pandemics (such as COVID-19), epidemics, or fear of spread of
contagious diseases could disrupt the travel industry and our operations, which could materially and adversely affect our business, financial condition,
and results of operations.”
As of December 31, 2020, our primary capital commitment was RMB13 million (US$2 million) in connection with capital expenditures of
property, equipment and software.
C. Research and Development, Patents and Licenses, etc.
Our research and development efforts consist of continuing to develop our proprietary technology as well as incorporating new technologies from
third parties. We intend to continue to upgrade our proprietary booking, customer relationship management and yield management software to keep up
with the continued growth in our transaction volume and the rapidly evolving technological conditions. We will also seek to continue to enhance our
electronic confirmation system and promote such system with more hotel suppliers, as we believe that the electronic confirmation system is a cost-
effective and convenient way for hotels to interface with us.
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In addition, we have utilized and will continue to utilize the products and services of third parties to support our technology platform.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the
period from January 1, 2020 to December 31, 2020 that are reasonably likely to have a material effect on our net revenues, income, profitability,
liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial
conditions.
E. Off-Balance Sheet Arrangements
In connection with our air ticketing business, we are required by the China Air Transport Association and International Air Transport Association
to enter into guarantee arrangements and to pay deposits. The unused deposits are repaid at the end of the guaranteed period on an annual basis. As of
December 31, 2020, the total quota of the air tickets that we were entitled to issue was up to RMB1.1 billion (US$167 million). The total amount of the
deposit we paid was RMB146 million (US$22 million).
Based on the guarantee arrangements and historical experience, the maximum amount of the future payments is approximately RMB943 million
(US$145 million), which is the guaranteed amount of the air ticket that we could issue rather than a financial guarantee. We will be liable to pay only
when we issue the air tickets to our users and such payable is included in the accounts payable. Therefore, we believe the guarantee arrangements do not
constitute any contractual and constructive obligation of us and has not recorded any liability beyond the amount of the tickets that have already been
issued.
F. Tabular Disclosure of Contractual Obligations
The following sets forth our contractual obligations as of December 31, 2020:
Convertible senior notes with principal and interest
Exchangeable senior notes with principal and interest
Term loans and other debt, with principal and interest
Purchase obligations
Total
Total
7,191
3,581
45,812
13
56,597
Less Than 1
Year
1-3 Years 3-5 Years
(RMB in millions)
More Than
5 Years
6,659
49
27,567
11
34,286
500
98
15,456
2
16,056
32
98
2,775
—
2,905
—
3,336
14
—
3,350
In June 2015, we issued the 2020 Notes in an aggregate principal amount of US$700 million, which may be converted at any time prior to the
close of business on the second business day immediately preceding the maturity date of July 1, 2020 based on an initial conversion rate of 9.1942 of
our ADSs per US$1,000 principal amount of notes. The conversion rate is subject to adjustment upon occurrence of certain events. The 2020 Notes bear
interest at a rate of 1.00% per year, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2016. In July 2020,
we redeemed the 2020 Notes in cash. The aggregate purchase price of these 2020 Notes was US$700 million.
In June 2015, we issued the 2025 Notes in an aggregate principal amount of US$400 million, which may be converted, at each holder’s option at
any time prior to the close of business on the second business day immediately preceding the maturity date of July 1, 2025 based on an initial conversion
rate of 9.3555 of our ADSs per US$1,000 principal amount of notes. The conversion rate is subject to adjustment upon occurrence of certain events. The
2025 Notes bear interest at a rate of 1.99% per year, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2016.
In July 2020, we exercised our put right option relating to the 2025 Notes at an aggregate purchase price of US$395 million.
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In September 2016, we issued the 2022 Notes in an aggregate principal amount of US$975 million, which may be converted, at each holder’s
option at any time prior to the close of business on the business day immediately preceding the maturity date of September 15, 2022 based on an initial
conversion rate of 15.2688 of our ADSs per US$1,000 principal amount of notes. The conversion rate is subject to adjustment upon occurrence of
certain events. The 2022 Notes bear interest at a rate of 1.25% per year, payable semiannually in arrears on March 15 and September 15 of each year,
beginning on March 15, 2017. In September 2019, we completed put right offer relating to the 2022 Notes. US$924 million aggregate principal amount
of the 2022 Notes were validly surrendered and not withdrawn prior to the expiration of the put right offer. The aggregate purchase price of these 2022
Notes was US$924 million.
In May 2015, we issued US$250 million in aggregate principal amount of 1.00% convertible notes due 2020, or the 2020 Booking Notes, to a
subsidiary of Booking Holdings Inc. (formerly known as the Priceline Group Inc.), which would mature on May 29, 2020, unless earlier repurchased or
converted into our ADSs based on an initial conversion rate of 9.5904 of our ADSs per US$1,000 principal amount of notes. The conversion rate is
subject to adjustment upon occurrence of certain events. The 2020 Booking Notes bear interest at a rate of 1.00% per year, payable semiannually
beginning on November 29, 2015. In 2020, the 2020 Booking Notes with principal amount of US$250 million were redeemed in cash.
In December 2015, we issued US$500 million in aggregate principal amount of 2.00% convertible notes due 2025, or the 2025 Booking Notes, to
a subsidiary of Booking Holdings Inc. (formerly known as the Priceline Group Inc.), which will mature on December 11, 2025, unless earlier
repurchased or converted into our ADSs based on an initial conversion rate of 14.6067 of our ADSs per US$1,000 principal amount of notes. The
conversion rate is subject to adjustment upon occurrence of certain events. The 2025 Booking Notes bear interest at a rate of 2.00% per year, payable
semiannually beginning on June 11, 2016.
In December 2015, we issued US$500 million in aggregate principal amount of 2.00% convertible notes due 2025, or the 2025 Hillhouse Notes, to
Gaoling Fund, L.P. and YHG Investment, L.P., or collectively Hillhouse, which will mature on December 11, 2025, unless earlier repurchased or
converted into our ADSs based on an initial conversion rate of 14.6067 of our ADSs per US$1,000 principal amount of notes. The conversion rate is
subject to adjustment upon occurrence of certain events. The 2025 Hillhouse Notes bear interest at a rate of 2.00% per year, payable semiannually
beginning on June 11, 2016.
In September 2016, we issued US$25 million in aggregate principal amount of 1.25% convertible notes due 2022, or the 2022 Booking Notes, to a
subsidiary of Booking Holdings Inc. (formerly known as the Priceline Group Inc.), which will mature on September 15, 2022, unless earlier repurchased
or converted into our ADSs based on an initial conversion rate of 15.2688 of our ADSs per US$1,000 principal amount of notes. The conversion rate is
subject to adjustment upon occurrence of certain events. The 2022 Booking Notes bear interest at a rate of 1.25% per year, payable semiannually
beginning on March 15, 2017.
In July 2019, we entered into a facility agreement as a borrower with certain financial institutions for up to US$2.0 billion equivalent transferable
term loan facility with a greenshoe option of up to US$500 million. The facilities have a 3-year tenor. The proceeds borrowed under such facilities may
be used for our general working capital requirements, including repayment of any existing financial indebtedness.
In April 2020, we entered into a facility agreement as a borrower with certain financial institutions for up to US$1.0 billion transferrable term and
revolving loan facility with an incremental facility of up to US$500 million. The facilities have a 3-year tranche and a 5-year tranche. The proceeds
borrowed under the facilities may be used for our general working capital requirements, including repayment of any existing financial indebtedness.
In July 2020, we issued the US$500 million in aggregate principal amount of 1.50% exchangeable senior notes due 2027, or the 2020
Exchangeable Notes. The 2020 Exchangeable Notes are exchangeable, at the option of the holders and subject to certain conditions, into cash, ADSs of
Huazhu Group Limited (Nasdaq: HTHT), or a combination thereof, at our election subject to certain conditions. The initial exchange rate of the 2020
Exchangeable Notes is 24.78 Huazhu ADSs per US$1,000 principal amount of the notes. The 2020 Exchangeable Notes bear interest at a rate of 1.50%
per year, payable semiannually beginning on January 1, 2021.
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As of December 31, 2020, we obtained short-term bank borrowings of RMB26.8 billion (US$4.1 billion) in aggregate, of which RMB7.0 billion
(US$1.1 billion) were collateralized by short-term and long-term investment of RMB7.0 billion (US$1.1 billion). The weighted average interest rate for
the outstanding borrowings was approximately 2.89%.
As of December 31, 2020, we obtained long-term borrowings of RMB17.8 billion (US$2.7 billion) in aggregate, of which RMB1.3 billion
(US$193 million) were collateralized by short-term investments, long-term investments and properties of the Company. The weighted average interest
rate for the outstanding borrowings as of December 31, 2020 was approximately 1.68%. The Company was in compliance with the applicable financial
covenants under those lines of credit as of December 31, 2020.
While the table above indicates our contractual obligations as of December 31, 2020, the actual amounts we are eventually required to pay may be
different in the event that any agreements are renegotiated, cancelled or terminated.
G. Safe Harbor
This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. These
statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-
looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to” or
other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and
financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking
statements include, among other things:
•
•
•
•
our anticipated growth strategies;
our future business development, results of operations and financial condition;
our ability to continue to control costs and maintain profitability; and
the expected growth in the overall economy and demand for travel services in China.
The forward-looking statements included in this annual report on Form 20-F are subject to risks, uncertainties and assumptions about our
company. Our actual results of operations may differ materially from the forward-looking statements as a result of the risk factors described under “Item
3.D. Key Information — Risk Factors,” included elsewhere in this annual report on Form 20-F, including the following risks:
•
•
•
•
•
•
slow-down of economic growth in China and the global economic downturn may have a material and adverse effect on our business, and
may materially and adversely affect our growth and profitability;
public health crisis, such as COVID-19 outbreak, may have a material and adverse effect on our business and results of operations;
general declines or disruptions in the travel industry may materially and adversely affect our business and results of operations;
the trading price of our ADSs has been volatile historically and may continue to be volatile regardless of our operating performance;
if we are unable to maintain existing relationships with travel suppliers and strategic alliances, or establish new arrangements with travel
suppliers and strategic alliances similar to those we currently have, our business may suffer;
if we fail to further increase our brand recognition, we may face difficulty in retaining existing and acquiring new business partners and
customers, and our business may be harmed;
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•
•
•
•
•
•
•
•
if we do not compete successfully against new and existing competitors, we may lose our market share, and our business and results of
operations may be materially and adversely affected;
our business could suffer if we do not successfully manage current growth and potential future growth;
our strategy to acquire or invest in complementary businesses and assets involves significant risks and uncertainty that may prevent us
from achieving our objectives and harm our financial condition and results of operations;
our quarterly results are likely to fluctuate because of seasonality in the travel industry in Greater China;
our business may be harmed if our infrastructure and technology are damaged or otherwise fail or become obsolete;
our business depends substantially on the continuing efforts of our key executives, and our business may be severely disrupted if we lose
their services;
inflation in China may disrupt our business and have an adverse effect on our financial condition and results of operations; and
if the ownership structure of our consolidated affiliated Chinese entities and the contractual arrangements among us, our consolidated
affiliated Chinese entities and their shareholders are found to be in violation of any PRC laws or regulations, we and/or our consolidated
affiliated Chinese entities may be subject to fines and other penalties, which may adversely affect our business and results of operations.
These risks are not exhaustive. Other sections of this annual report include additional factors that could adversely impact our business and
financial performance. You should read these statements in conjunction with the risk factors disclosed in Item 3.D. of this annual report, “Item 3.D. Key
Information — Risk Factors,” and other risks outlined in our other filings with the Securities and Exchange Commission, or SEC. Moreover, we operate
in an emerging and evolving environment. New risk factors may emerge from time to time, and it is not possible for our management to predict all risk
factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The names of our current directors and senior management, their ages as of the date of this annual report, and the principal positions with
Trip.com Group Limited held by them are as follows:
Directors and Executive Officers
James Jianzhang Liang
Min Fan
Jane Jie Sun
Cindy Xiaofan Wang
Neil Nanpeng Shen (1)(2)
Qi Ji (2)
Gabriel Li (1)
JP Gan (1) (2)
Robin Yanhong Li
Dou Shen
Notes:
(1)
(2)
Member of the Audit Committee.
Member of the Compensation Committee.
Age
Position/Title
51 Co-founder; Executive Chairman of the Board
55 Co-founder; Vice Chairman of the Board and President
52 Chief Executive Officer and Director
45 Chief Financial Officer and Executive Vice President
53 Co-founder; Independent Director
54 Co-founder; Independent Director
53 Vice Chairman of the Board, Independent Director
49
52 Director
41 Director
Independent Director
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Pursuant to the currently effective articles of association of our company, our board of directors consists of nine directors, including without
limitation (i) three directors appointed by our co-founders consisting of Messrs. James Jianzhang Liang, Neil Nanpeng Shen, Qi Ji, and Min Fan, subject
to the approval of a majority of our independent directors; and (ii) one director who is the current chief executive officer of our company. Each of our
directors will hold office until such director’s successor is elected and duly qualified, or until such director’s earlier death, bankruptcy, insanity,
resignation or removal. There are no family relationships among any of the directors or executive officers of our company.
Biographical Information
James Jianzhang Liang is one of the co-founders and the executive chairman of our company. He has served as a member of our board of
directors since our inception and has been the chairman of the board since August 2003. Mr. Liang served as our chief executive officer from 2000 to
2006, and from March 2013 to November 2016. Mr. Liang has served as a director of Sina Corporation (Nasdaq: SINA) since December 2017, a
director of MakeMyTrip Limited (Nasdaq: MMYT) since January 2016, a director of BTG Hotels Group (SSE:600258) since January 2017, and a
director of Tongcheng-eLong (SEHK: 780) since 2016. Mr. Liang formerly served on the boards of Tuniu Corporation (Nasdaq: TOUR), eHi Car
Services Limited (NYSE: EHIC, delisted, privatized in April 2019), 51job, Inc (Nasdaq: JOBS), Jiayuan.com International Ltd. (Nasdaq: DATE,
delisted, privatized in May 2016), and Homeinns Hotel Group (Nasdaq: HMIN, delisted, privatized in April 2016). Mr. Liang has won many accolades
for his contributions to the Chinese travel industry, including Best CEO in the Internet category in the 2016 All-Asia Executive Team Rankings by
Institutional Investor and 2015 China’s Business Leader of the Year by Forbes. Mr. Liang obtained master’s degrees in information and computer
science from Georgia Institute of Technology in the United States in June 1991.
Min Fan is one of the co-founders of our company. Mr. Fan has been a member of our board of directors since October 2006 and has served as the
vice chairman of our board of directors since March 2013. Mr. Fan has served as our president since February 2009. He also served as our chief
executive officer from January 2006 to March 2013, as our chief operating officer from November 2004 to January 2006, and as our executive vice
president from 2000 to November 2004. During his tenure as our chief executive officer, Mr. Fan was named one of the Top 10 Pioneer Leaders of the
Year on the 2010 APEC China SME Value List, 2008 EY Entrepreneur of the Year (Services Category) and 2007 Best New Economic Figure of the
Year. In 2009 and 2016, Mr. Fan was elected Vice Chairman of the Board of the China Tourism Association. Mr. Fan has served as an independent
director of Leju Holdings Limited (NYSE: LEJU) since April 2014. He served as a director of Huazhu Group Limited (Nasdaq: HTHT, SEHK: 1179)
from March 2010 to January 2018. Mr. Fan obtained his Master’s and Bachelor’s degrees in industrial engineering and management from Shanghai Jiao
Tong University in January 1990 and July 1987, respectively.
Jane Jie Sun has served as the chief executive officer of our company, as well as a member of the board of directors, since November 2016. Prior
to that, she was a co-president since March 2015, chief operating officer since May 2012, and chief financial officer from 2005 to 2012. Ms. Sun is vice
chair of the World Travel and Tourism Council, co-chair of the Development Advisory Board of University of Michigan and Shanghai Jiao Tong
University Joint Institute, and a board member and Business Leaders Group Committee member of Business China established by Singapore’s Founding
Prime Minister Mr. Lee Kuan Yew. In 2019, Ms. Sun was awarded an Asia Society Asia Game Changer Award. Forbes named her one of the Emergent
25 Asia’s Latest Star Businesswomen in 2018, and one of the Top 100 Businesswomen in China in 2017. She was also one of Fortune’s Top 50 Most
Powerful Women in Business, and one of Fast Company’s Most Creative People in Business in 2017. During her tenure at our company, she also won
the Institutional Investor Awards for the Best CEO in July 2017 and the Best CFO in July 2011 and 2012. Ms. Sun received her Bachelor’s degree in
science in accounting from the Fisher School of Accounting at the University of Florida in August 1992 with high honors. She also obtained her LL.M.
degree from Peking University Law School in July 2010. Ms. Sun has been a director of TripAdvisor, Inc. (Nasdaq: TRIP) since July 2020, a director of
MakeMyTrip Limited (Nasdaq: MMYT) since August 2019, an independent director of iQIYI, Inc. (Nasdaq: IQ) since June 2018, and an independent
director of TAL Education Group (NYSE: TAL) since October 2010.
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Cindy Xiaofan Wang has served as our chief financial officer since November 2013 and executive vice president since May 2016. Prior to that, she
was our Vice President since January 2008. Ms. Wang joined us in December 2001 and has held a number of managerial positions at our Company.
Ms. Wang won the Best CFO Award by Institutional Investor in the 2017 All-Asia Executive Team Rankings, and China Best CFO Leadership Award
by SNAI/ACCA/Korn Ferry. Previously, Ms. Wang worked with PricewaterhouseCoopers Zhong Tian CPAs Limited Company. Ms. Wang has been a
director of MakeMyTrip Limited (Nasdaq: MMYT) since August 2019. She also served on the board of directors of Huazhu Group Limited (Nasdaq:
HTHT, SEHK: 1179) from January 2018 to July 2020. Ms. Wang received a Master of Business Administration from Massachusetts Institute of
Technology and obtained her Bachelor’s degree from Shanghai Jiao Tong University. Ms. Wang is a Certified Public Accountant (CPA).
Neil Nanpeng Shen is one of the co-founders of our company and has been our company’s director since our inception and an independent director
since October 2008. Neil Nanpeng Shen founded Sequoia Capital China in 2005 and has been serving as the founding managing partner since then.
Mr. Shen served as our president from August 2003 to October 2005 and as chief financial officer from 2000 to October 2005. Mr. Shen also co-founded
and served as non-executive co-chairman of Homeinns Hotel Group (formerly Home Inns & Hotels Management Inc.) (Nasdaq: HMIN, delisted), a
leading economy hotel chain in China, which commenced operations in July 2002. Currently, Mr. Shen also serves as a director of a number of public
and private companies, including a non-executive director of BTG Hotels Group (SHSE: 600258) since January 2017, a non-executive director of Noah
Holdings Limited (NYSE: NOAH) since January 2016, an independent non-executive director of Pinduoduo Inc. (Nasdaq: PDD) since April 2018, a
non-executive director of Meituan (formerly Meituan Dianping) (SEHK: 3690) since October 2015, and a non-executive director of Ninebot Limited
(SSE: 689009) since July 2015. Mr. Shen was a non-executive director of FinVolution Group (formerly PPDAI Group Inc.) (NYSE: FINV) from
February 2017 to August 2018, as a non-executive director from May 2014 to December 2015 and independent non-executive director from December
2015 to December 2018 for Momo Inc. (Nasdaq: MOMO), a non-executive director of 360 Security Technology Inc. (SSE: 601360) from February
2018 to May 2020, and a non-executive director of China Renaissance Holdings Limited (SEHK: 1911) from June 2018 to June 2020. Mr. Shen
received his Master’s degree from Yale University in November 1992 and his Bachelor’s degree in applied mathematics from Shanghai Jiao Tong
University in July 1988.
Qi Ji is one of the co-founders of our company. He has served as our director since our inception and as an independent director since 2008. He
was the chief executive officer and president of our Company from 1999 to 2001. Mr. Ji founded Huazhu Group Limited (Nasdaq: HTHT; SEHK:
1179), served as its director since February 2007. He has also served as the executive chairman of its board since August 2009 and its chief executive
officer since November 2019. Prior to his current role, he also served at Huazhu Group Limited as chief executive officer from January 2012 to May
2015 and from 2007 to August 2009. Mr. Ji has over 20 years of experience in the hospitality industry. He co-founded Homeinns Hotel Group (formerly
Home Inns & Hotels Management Inc.) (Nasdaq: HMIN, delisted), and served as its chief executive officer from 2002 to January 2005. He received his
bachelor degree in engineering mechanics and master degree in mechanical engineering from Shanghai Jiao Tong University in the PRC in 1989 and
February 1992, respectively.
Gabriel Li has served at different times on our board of directors since 2000. Mr. Li has been vice chairman of our board since August 2003 and
an independent director since October 2003. Mr. Li has been serving as the managing partner and a member of the investment committee of Orchid Asia
Group Management Limited since August 2004. Mr. Li is a non-executive director of Qeeka Home (Cayman) Inc. (SEHK: 1739), where he has been a
director since April 2015, and was a director of Sangfor Technologies Inc. (SZSE: 300454) from January 2017 to December 2019. Mr. Li graduated
from the University of California in Berkeley, the United States, with a bachelor’s degree in chemical engineering in May 1990. He received his master
of science degree in chemical engineering practice from the Massachusetts Institute of Technology in the United States in September 1991, and his
master’s degree in business administration from Stanford University Business School in the United States in June 1995.
JP Gan has served as our director since 2002, and as an independent director since July 2005. Mr. Gan has been a founding partner of INCE
Capital Limited since 2019. From 2006 to 2019, Mr. Gan was a managing partner of Qiming Venture Partners. From 2005 to 2006, Mr. Gan was the
chief financial officer of KongZhong Corporation, a wireless internet company formerly listed on the Nasdaq. Prior to joining KongZhong, Mr. Gan was
a director of The Carlyle Group responsible for venture capital investments in the Greater China region from 2000 to 2005. Mr. Gan worked at the
investment banking division of Merrill Lynch, in Hong Kong from 1999 to 2000, and worked at Price Waterhouse in the United States from 1994 to
1997. Mr. Gan has been an independent director of BiliBili Inc. (Nasdaq: BILI) since 2015. Mr. Gan obtained his Masters of Business Administration
from the University of Chicago Graduate School of Business and his Bachelor of Business Administration from the University of Iowa.
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Robin Yanhong Li has served as our director since 2015. He is a co-founder of Baidu, Inc. (Nasdaq: BIDU), the leading Chinese language Internet
search provider. Mr. Li has served as the chairman of the board of directors of Baidu since its inception in January 2000 and as its chief executive officer
since February 2004. He served as the president of Baidu from February 2000 to December 2003. Currently, Mr. Li acts as the vice president of the
Internet Society of China (ISC). Mr. Li has served as an independent director of New Oriental Education & Technology Group Inc. (Nasdaq: EDU;
SEHK: 9901) since September 2006. He has also been chairman since 2009 and director of iQIYI, Inc. (Nasdaq: IQ) since 2009. Mr. Li received a
bachelor’s degree in information science from Peking University and a master’s degree in computer science from the State University of New York at
Buffalo.
Dou Shen has served as our director since October 2019. Dr. Shen has served as an executive vice president of Baidu, Inc. (Nasdaq: BIDU) since
May 2019. Dr. Shen has also been a director of Beijing Xiaodu Interactive Entertainment Technology Co., Ltd. since January 2018, and the chairman of
Beijing Xiaodu Interactive Entertainment Technology Co., Ltd. since September 2020. Previously, Dr. Shen served as senior vice president of Baidu,
Inc., overseeing the businesses related to Baidu App, Haokan short video app and Smart Mini Program. Dr. Shen joined Baidu in 2012 and has served in
management roles in business lines, including web search, advertising display and the financial services group. Prior to joining Baidu, Dr. Shen worked
at Microsoft and co-founded BuzzLabs, Inc., a company engaged in social media monitoring and analysis, which was subsequently acquired by
CityGrid Media. Dr. Shen holds directorships at various other companies. Dr. Shen has been a director of iQIYI, Inc. (Nasdaq: IQ) since September
2019, has been a director of Kuaishou Technology (SEHK: 1024) since April 2018 and was previously a director of Uxin Limited (Nasdaq: UXIN) from
May 2018 to November 2019. Dr. Shen received his bachelor’s degree in information engineering (computer technology) from North China Electric
Power University in Beijing, the PRC, in June 2001, a master’s degree in computer science and technology from Tsinghua University in Beijing, the
PRC, in July 2004, and a Ph.D. degree in computer science from the Hong Kong University of Science and Technology in Hong Kong in November
2007. Dr. Shen was awarded by Beijing Overseas Talent Service Joint Council as “Beijing High-Caliber Talent from Overseas” and “Beijing
Distinguished Expert” in July 2014. Dr. Shen was also acknowledged by Beijing Senior Specialized Technique Qualification Evaluation Committee as a
senior engineer in computer technology in May 2018.
B. Compensation
We have entered into a standard form of director agreement with each of our directors. Under these agreements, we paid cash compensation
(inclusive of directors’ fees) to our directors in an aggregate amount of US$1.2 million in 2020. Directors are reimbursed for all expenses incurred in
connection with each Board of Directors meeting and when carrying out their duties as directors of our company. See “Item 6.B. Directors, Senior
Management and Employees — Compensation — Employees’ Share Incentive Plans” for options granted to our directors in 2020.
We have entered into standard forms of employment agreements with our executive officers. Under these agreements, we paid cash compensation
to our executive officers in an aggregate amount of US$0.5 million in 2020, excluding compensation paid to Min Fan, James Jianzhang Liang and Jane
Jie Sun, who also serve and receive compensation as our executive directors. These agreements provide for terms of service, salary and additional cash
compensation arrangements, all of which have been reflected in the 2020 aggregate compensation amount. See “Item 6.B. Directors, Senior
Management and Employees — Compensation — Employees’ Share Incentive Plans” for options granted to our executive officers in 2020.
Our PRC subsidiaries are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension
insurance, medical insurance, housing fund, unemployment and other statutory benefits. Except for the above statutory contributions, we have not set
aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors.
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Employees’ Share Incentive Plans
Our board of directors has made share-based awards under five share incentive plans, namely, the Global Share Incentive Plan, as amended and
restated in July 2018 and further amended and restated in December 2019, or the Second A&R Global Plan, the 2007 Share Incentive Plan, or the 2007
Plan, the 2005 Employee’s Stock Option Plan, or the 2005 Plan, the 2003 Employee’s Option Plan, or the 2003 Plan, and the 2000 Employee’s Stock
Option Plan, or the 2000 Plan. The terms of the 2005 Plan, the 2003 Plan and the 2000 Plan are substantially similar. The purpose of the plans is to
attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, officers and
directors and to promote the success of our business. Our board of directors believes that our company’s long-term success is dependent upon our ability
to attract and retain superior individuals who, by virtue of their ability and qualifications, make important contributions to our business.
The 2007 Plan, the 2005 Plan, the 2003 Plan and the 2000 Plan have all expired. Under the Second A&R Global Plan, the maximum aggregate
number of ordinary shares that may be issued pursuant to awards was 12,609,656 as of the first business day of 2021, with annual increases on January 1
of each subsequent calendar year by the number of ordinary shares representing 3% of our then total issued and outstanding share capital as of
December 31 of the preceding year until the termination of the plan. Under the 2007 Plan, options to purchase 2,094,231 shares were issued and
outstanding as of February 28, 2021. Under the Second A&R Global Plan, options to purchase 4,944,596 shares and 107,555 restricted share units were
issued and outstanding as of February 28, 2021.
In June 2017, our board of directors approved our Global Share Incentive Plan.
In July 2018, our compensation committee and board of directors amended and restated the Global Share Incentive Plan and approved the
Amended and Restated Global Share Incentive Plan to increase the number of shares that may be issued thereunder.
In December 2019, we completed a one-time modification of share options, pursuant to which eligible employees were able to exchange every
four of the share options that were granted under the 2017 Share Incentive Plan and the Amended and Restated Global Incentive Plan with exercise price
exceeding US$320 per ordinary share for one new option entitling each eligible grantee to purchase one ordinary share at the exercise price of US$0.01
with the original vesting schedules remaining unchanged. As a result of the modification, prior options to purchase 835,849 ordinary shares were
exchanged for new options to purchase 209,026 ordinary shares.
In December 2019, our board of directors approved our Second A&R Global Plan.
In November 2020, as approved by our compensation committee, we extended the exercise period of certain options that were granted under our
2007 Plan to our directors and executive officers that would originally expire for additional five years from their respective original expiration dates.
The following table summarizes, as of February 28, 2021, the outstanding options and the outstanding restricted share units granted under our
2007 Plan and the Second A&R Global Plan to the individual executive officers and directors named below. The table gives effect to the modifications
described above.
James Jianzhang Liang
Ordinary Shares
Underlying
Options/Restricted
Share Units
Granted
2,690,200
Exercise Price (US$/Share)
161.96; 179.64;
237.00; 247.44;
324.96; 350.72;
209.04; 253.44; 207.36
Date of Grant
From January 9, 2014
to June 30, 2020
Date of Expiration
From April 2,
2023 to June 30,
2028
Jane Jie Sun
1,115,200
78.56; 161.96;
179.64; 237.00;
247.44; 324.96;
350.72; 209.04;
253.44; 207.36
1,500(1) —
February 9, 2018
From January 27,
2013 to June 30,
2020
—
From April 2,
2023 to June 30,
2028
Min Fan
1,500(1) —
131,867
78.56; 161.96;
179.64; 237.00;
247.44; 324.96;
350.72; 0.01; 253.44
February 9, 2018
From January 27,
2013 to December 4,
2019
—
From April 2,
2023 to
December 6,
2027
1,500(1) —
February 9, 2018
—
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Cindy Xiaofan Wang
Neil Nanpeng Shen
Qi Ji
Gabriel Li
JP Gan
Ordinary Shares
Underlying
Options/Restricted
Share Units
Granted
*
*
*
*
*
From April 2,
2023 to June 30,
2028
From April 2,
2023 to
December 6,
2027
161.96; 179.64;
237.00; 247.44;
209.04; 0.01; 253.44
78.56; 179.64;
237.00; 247.44;
324.96; 350.72;
209.04; 253.44
179.64; 237.00;
247.44; 324.96;
350.72; 209.04; 253.44
Exercise Price (US$/Share) Date of Grant Date of Expiration
From
January 9,
2014
to June 30,
2020
From
January 27,
2013 to
December 4,
2019
From
December 6,
2014 to
December 4,
2019
From
January 27,
2013 to
December 4,
2019
From
December 6,
2014 to
December 4,
2019
179.64; 237.00;
247.44; 324.96;
350.72; 209.04; 253.44
78.56; 179.64;
237.00; 247.44;
324.96; 350.72;
209.04; 253.44
From April 2,
2023 to
December 6,
2027
From April 2,
2023 to
December 6,
2027
From April 2,
2023 to
December 6,
2027
*
Aggregate number of shares represented by all grants of options and/or restricted share units to the person account for less than 1% of our total outstanding ordinary shares.
Note:
(1)
Restricted share units.
The following paragraphs summarize the terms of our 2007 Plan, which was amended and restated effective November 17, 2008.
Plan Administration. Our board of directors, or a committee designated by our board or directors, will administer the plan. The committee or the
full board of directors, as appropriate, will determine the type or types of incentive share awards to be granted and provisions and terms and conditions
of each grant and may at their absolute discretion adjust the exercise price of an option grant. The exercise price per share subject to an option may be
reduced by the committee or the full board of directors, without shareholder or option holder approval. The types of incentive share awards pursuant to
the 2007 Plan include, among other things, an option, a restricted share award, a share appreciation right award and a restricted share unit award.
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Award Agreements. Options and stock purchase rights granted under our plan are evidenced by a stock option agreement or a stock purchase right
agreement, as applicable, that sets forth the terms, conditions and limitations for each grant.
Eligibility. We may grant awards to our employees, directors and consultants or any of our related entities, which include our subsidiaries or any
entities which are not subsidiaries but are consolidated in our consolidated financial statements prepared under U.S. GAAP.
Acceleration of Options upon Corporate Transactions. The outstanding options will terminate and accelerate upon occurrence of a change of
control corporate transaction where the successor entity does not assume our outstanding options under the plan. In such event, each outstanding option
will become fully vested and immediately exercisable, and the transfer restrictions on the awards will be released and the repurchase or forfeiture rights
will terminate immediately before the date of the change of control transaction provided that the grantee’s continuous service with us shall not be
terminated before that date.
Term of the Options. The term of each option grant shall be stated in the stock option agreement, provided that the term shall not exceed ten years
from the date of the grant, and in the case of incentive share options, five years from the date of the grant.
Vesting Schedule. In general, the plan administrator determines, or the incentive award agreement specifies, the vesting schedules. Currently, three
types of vesting schedules were adopted for the incentive awards granted under the 2007 Plan. One of the vesting schedules is that one-third of the
incentive awards vest 24 months after a specified vesting commencement date, an additional one-third vest 36 months after the specified vesting
commencement date and the remaining one-third vest 48 months after the specified vesting commencement date, subject to other terms under the 2007
Plan and the incentive award agreement. Another type of vesting schedule is that one-fourth of the incentive awards vest every 12 months over a four-
year vesting period starting from a specified vesting commencement date, subject to other terms under the 2007 Plan and the incentive award agreement.
The last type of vesting schedule is that one-tenth of the incentive awards vest 12 months after a specified vesting commencement date, an additional
three-tenth vest 24 months after the specified vesting commencement date, another three-tenth vest 36 months after the specified vesting commencement
date and the remaining three-tenth vest 48 months after the specified vesting commencement date, subject to other terms under the 2007 Plan and the
incentive award agreement
Other Equity Awards. In addition to stock options, we may also grant to our employees, directors and consultants or any of our related entities
share appreciation rights, restricted share awards, restricted share unit awards, deferred share awards, dividend equivalents and share payment awards,
with such terms and conditions as our board of directors (or, if applicable, the compensation committee) may, subject to the terms of the plan, establish.
Transfer Restrictions. Options to purchase our ordinary shares may not be transferred in any manner by the optionee other than by will or the laws
of succession and may be exercised during the lifetime of the optionee only by the optionee.
Termination or Amendment of the Plan. Unless terminated earlier, the plan was terminate automatically in 2017. Our board of directors has the
authority to amend or terminate the plan subject to shareholder approval to the extent necessary to comply with applicable law, regulation or stock
exchange rule. We must also generally obtain approval of our shareholders to (i) increase the number of shares available under the plan (other than any
adjustment as described above), (ii) permit the grant of options with an exercise price that is below fair market value on the date of grant, (iii) extend the
exercise period for an option beyond ten years from the date of grant, or (iv) results in a material increase in benefits or a change in eligibility
requirements.
The following paragraphs summarize the principal terms of our Second A&R Global Plan.
Plan Administration. Our compensation committee of the board of directors, or a committee delegated by our compensation committee, will
administer the plan. The committee or the full board of directors, as appropriate, will determine the type or types of incentive share awards to be granted
and provisions and terms and conditions of each grant and may at their absolute discretion adjust the exercise price of an option grant. The exercise price
per share subject to an option may be reduced by the committee or the full board of directors, without shareholder or option holder approval. The types
of incentive share awards pursuant to the Second A&R Global Plan include, among other things, an option, a restricted share award, a share appreciation
right award and a restricted share unit award.
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Award Agreements. Options and stock purchase rights granted under our 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 or any of our related entities, which include our subsidiaries or any
entities which are not subsidiaries but are consolidated in our consolidated financial statements prepared under U.S. GAAP.
Term of the Options. The term of each option grant shall be stated in the stock option agreement, provided that the term shall not exceed ten years
from the date of the grant, and in the case of incentive share options, five years from the date of the grant.
Vesting Schedule. In general, the plan administrator determines, or the incentive award agreement specifies, the vesting schedules. Our vesting
schedule is mainly that one-tenth of the incentive awards vest 12 months after a specified vesting commencement date, an additional three-tenth vest 24
months after the specified vesting commencement date, another three-tenth vest 36 months after the specified vesting commencement date and the
remaining three-tenth vest 48 months after the specified vesting commencement date, subject to other terms under the Second A&R Global Plan and the
incentive award agreement.
Other Equity Awards. In addition to stock options, restricted share awards and restricted share unit awards, we may also grant to our employees,
directors and consultants or any of our related entities share appreciation rights, deferred share awards, dividend equivalents and share payment awards,
with such terms and conditions as our board of directors (or, if applicable, the compensation committee) may, subject to the terms of the plan, establish.
Transfer Restrictions. Awards may not be transferred in any manner by the participant other than by will or the laws of succession and may be
exercised during the lifetime of the participant only by the participant.
Termination or Amendment of the Plan. Unless terminated earlier, the plan will terminate automatically in 2027. Our board of directors has the
authority to amend or terminate the plan to the extent necessary to comply with applicable law, regulation or stock exchange rule. We must also
generally obtain approval of our shareholders to (i) increase the number of shares available under the plan (other than any adjustment as described
above), (ii) permits the committee to extend the exercise period for an option beyond ten years from the date of grant, or (iii) results in a change in
eligibility requirements, unless we decide to follow home country practice pursuant to Rule 5615(a)(3) of the Nasdaq listing rules applicable to foreign
private issuers.
C. Board Practices
Our board of directors currently consists of nine directors. A director is not required to hold any shares in the company by way of qualification.
Our board of directors may exercise all the powers of the company to borrow money, mortgage or charge 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. No director
is entitled to any severance benefits upon termination of his directorship with us. As of the date of this annual report, four out of nine of our directors
meet the “independence” definition under The Nasdaq Stock Market, Inc. Marketplace Rules, or the Nasdaq Rules. As Nasdaq Rules permit a foreign
private issuer like us to follow the corporate governance practices of its home country, we chose to rely on home country practice in lieu of the
requirement to have a majority of independent directors on our board under Nasdaq Rules. See “Item 16G. Corporate Governance.”
Committees of the Board of Directors
Audit Committee. Our audit committee reports to the board regarding the appointment of our independent auditors, the scope and results of our
annual audits, compliance with our accounting and financial policies and management’s procedures and policies relatively to the adequacy of our
internal accounting controls.
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As of the date of this annual report, our audit committee consists of Messrs. Gan, Li and Shen. All of these directors meet the audit committee
independence standard under Rule 10A-3 under the Exchange Act. The independence definition under Rules 5605 of the Nasdaq Rules is met by
Messrs. Gan, Li and Shen. In addition, all the members of our audit committee qualify as “audit committee financial experts” as defined in the relevant
Nasdaq Rules.
Compensation Committee. Our compensation committee reviews and evaluates and, if necessary, revises the compensation policies adopted by the
management. Our compensation committee also determines all forms of compensation to be provided to our senior executive officers. In addition, the
compensation committee reviews all annual bonuses, long-term incentive compensation, share options, employee pension and welfare benefit plans. Our
chief executive officer may not be present at any committee meeting during which her compensation is deliberated.
As of the date of this annual report, our compensation committee consists of Messrs. Gan, Ji and Shen, all of whom meet the “independence”
definition under the Nasdaq Rules.
Duties of Directors
Under Cayman Islands law, our directors have a duty of loyalty to act honestly and in good faith in the best interests of our company. Our directors
must also exercise their powers only for a proper purpose. 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 duties a greater degree of skill than what may reasonably be expected from a person
of his 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, as amended and restated from time to time, and the class rights vested thereunder in the
holders of the shares. Our company has the right to seek damages if a duty owed by our directors is breached. A shareholder may in certain
circumstances have rights to damages if a duty owed by the directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and
powers of our board of directors include, among others:
•
•
•
•
•
convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
declaring dividends and distributions;
appointing officers and determining the term of office of the officers;
exercising the borrowing powers of our company and mortgaging the property of our company; and
approving the transfer of shares in our company, including the registration of such shares in our share register.
Terms of Directors and Officers
All directors hold office until their successors have been duly elected and qualified unless such office is vacated earlier in accordance with the
articles of association. A director may only be removed by the shareholders who appointed such director, except in the case of ordinary directors, who
may be removed by ordinary resolutions of the shareholders. Officers are elected by and serve at the discretion of the board of directors.
D. Employees
As of December 31, 2020, we and our consolidated subsidiaries and consolidated affiliated Chinese entities had approximately 33,400 employees,
including approximately 3,187 in management and administration, approximately 10,006 in our customer service centers, approximately 4,011 in sales
and marketing, and approximately 16,196 in product development including supplier management personnel and technical support personnel. Most of
our employees are based in Shanghai, Beijing, Nantong, and Chengdu. We consider our relations with our employees to be good.
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E. Share Ownership
As of February 28, 2021, 75,134,439 of our ordinary shares were issued and outstanding (excluding the 3,258,920 ordinary shares that were issued
to Bank of New York Mellon, the depositary of our ADS program, for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting
of awards granted under our stock incentive plans and for our treasury ADSs, and treasury shares we own). Our shareholders are entitled to vote together
as a single class on all matters submitted to shareholders vote. No shareholder has different voting rights from other shareholders. We are not aware of
any arrangement that may, at a subsequent date, result in a change of control of our company.
The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of February 28, 2021 by each of our
directors and executive officers and each person known to us to own beneficially more than 5% of our ordinary shares. Except as otherwise noted, the
address of each person listed in the table is c/o Trip.com Group Limited, 968 Jin Zhong Road, Shanghai 200335, People’s Republic of China.
Directors and Senior Management:
James Jianzhang Liang(3)
Min Fan(4)
Jane Jie Sun(5)
Neil Nanpeng Shen(6)
Cindy Xiaofan Wang
Other directors and executive officers as a group, each of whom individually owns less than 0.1%
All directors and officers as a group(7)
Principal Shareholders:
Baidu Entities(8)
Pzena Investment Management, LLC(9)
T.ROWE PRICE ASSOCIATES, INC.(10)
MIH Internet SEA Private Limited(11)
Morgan Stanley(12)
*
Less than 1% of our total outstanding ordinary shares.
Ordinary Shares Beneficially
Owned(1)
Number
%(2)
2,380,047
1,261,514
1,165,834
*
*
*
5,225,397
3.1%
1.7%
1.5%
*%
*%
*%
6.7%
8,644,917.5 11.5%
6.6%
6.2%
5.5%
5.4%
4,925,735
4,670,020
4,108,831
4,069,277
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Beneficial ownership is determined in accordance with the SEC rules, and includes voting or investment power with respect to the securities.
For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the
number of ordinary shares outstanding as of February 28, 2021, the number of ordinary shares underlying share options held by such person or group that were exercisable within 60
days after February 28, 2021, and the number of ordinary shares in the form of ADSs assuming full conversion of notes held by such person or group to ADSs at the initial conversion
rate.
Includes 980,847 ordinary shares held by Mr. Liang and 1,399,200 ordinary shares that were issuable upon exercise of options exercisable within 60 days after February 28, 2021 held
by Mr. Liang.
Includes 1,136,647 ordinary shares held Mr. Fan and 124,867 ordinary shares that were issuable upon exercise of options exercisable within 60 days after February 28, 2021 held by
Mr. Fan.
Includes 514,634 ordinary shares held by Ms. Sun and 651,200 ordinary shares that were issuable upon exercise of options exercisable within 60 days after February 28, 2021.
Mr. Shen’s business address is Suite 3613, 36/F, Two Pacific Place, 88 Queensway, Hong Kong.
Includes 2,914,924 ordinary shares and 2,310,473 ordinary shares that were issuable upon exercise of options exercisable within 60 days after February 28, 2021 held by all of our
current directors and executive officers, as a group.
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(8)
(9)
(10)
(11)
(12)
Includes 8,644,917.5 ordinary shares (including 991,852.5 ordinary shares represented by ADSs) beneficially owned as of October 1, 2019 by Baidu Holdings Limited, a wholly-
owned subsidiary of Baidu, Inc. (collectively, “Baidu Entities”). Information regarding beneficial ownership is reported as of October 1, 2019, based on the information contained in
the Schedule 13D/A filed by Baidu Entities with SEC on October 2, 2019. Please see the Schedule 13D/A filed by Baidu Entities with SEC on October 2, 2019 for information relating
to Baidu Entities. The address for Baidu Holdings Limited is c/o Baidu, Inc., No. 10 Shangdi 10th Street, Haidian District, Beijing 100085, the People’s Republic of China, and the
address for Baidu, Inc. is No. 10 Shangdi 10th Street, Haidian District, Beijing 100085, the People’s Republic of China.
Includes 4,925,735 ordinary shares represented by ADSs held by Pzena Investment Management, LLC. Information regarding beneficial ownership is reported as of December 31,
2020, based on the information contained in the Schedule 13G filed by Pzena Investment Management, LLC with the SEC on February 2, 2021. Please see the Schedule 13G filed by
Pzena Investment Management, LLC with SEC on February 2, 2021 for information relating to Pzena Investment Management, LLC. The address for Pzena Investment Management,
LLC is 320 Park Avenue, 8th Floor, New York, NY 10022, the United States.
Includes 4,670,020 ordinary shares represented by ADS held by T.ROWE PRICE ASSOCIATES, INC. Information regarding beneficial ownership is reported as of December 31,
2020, based on the information contained in the Schedule 13G/A filed by T.ROWE PRICE ASSOCIATES, INC. with SEC on February 16, 2021. Please see the Schedule 13G/A filed
by T.ROWE PRICE ASSOCIATES, INC. with SEC on February 16, 2021 for information relating to T.ROWE PRICE ASSOCIATES, INC. The address for T.ROWE PRICE
ASSOCIATES, INC. is 100 E. Pratt Street, Baltimore, Maryland 21202, the United States.
Includes 4,108,831 ordinary shares held by MIH Internet SEA Private Limited. Information regarding beneficial ownership is reported as of October 1, 2019, based on the information
contained in the Schedule 13D filed by MIH Internet SEA Private Limited and Nasper Limited with the SEC on October 2, 2019. Please see the Schedule 13D filed by MIH Internet
SEA Private Limited and Nasper Limited with SEC on October 2, 2019 for information relating to MIH Internet SEA Private Limited and Nasper Limited. The address for MIH
Internet SEA Private Limited is #13-10 Parkview Square, 600 North Bridge Road, Singapore 188778.
Includes 4,069,277 ordinary shares represented by ADS held by Morgan Stanley. Information regarding beneficial ownership is reported as of December 31, 2020, based on the
information contained in the Schedule 13G filed by Morgan Stanley with SEC on February 12, 2021. Please see the Schedule 13G filed by Morgan Stanley with SEC on February 12,
2021 for information relating to Morgan Stanley. The address for Morgan Stanley. is 1585 Broadway New York, NY 10036, the United States.
Based on a review of the register of members maintained by our Cayman Islands registrar, we believe that as of February 28, 2021, 65,854,885
ordinary shares were held by two record shareholders in the United States, including 65,854,884 ordinary shares (including ordinary shares that were
issued for bulk issuance of ADSs reserved for future issuances upon the exercise or vesting of awards granted under our stock incentive plans and
treasury shares that were repurchased but not retired by the Company) held of record by The Bank of New York Mellon, the depositary of our ADS
program. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our
ordinary shares in the United States.
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to “Item 6.E. Directors, Senior Management and Employees — Share Ownership.”
B. Related Party Transactions
Arrangements with Consolidated Affiliated Chinese Entities
Current PRC laws and regulations impose substantial restrictions on foreign ownership of the travel agency and value-added telecommunications
businesses in China. Therefore, we conduct part of our businesses through a series of agreements between our PRC subsidiaries, our consolidated
affiliated Chinese entities and/or their respective shareholders. Our consolidated affiliated Chinese entities hold the licenses and approvals for operating
the travel agency, and value-added telecommunications businesses in China. We do not hold any ownership interest in our consolidated affiliated
Chinese entities. In 2015, we restructured our business lines and most of the contractual arrangements that we previously entered into with our
consolidated affiliated Chinese entities in order to further strengthen our ability to control these entities and receive substantially all of the economic
benefits from them. Moreover, we plan to enter into the same series of agreements with all of our future consolidated affiliated Chinese entities. As of
the date of this annual report, Min Fan, our vice chairman of the board and president, Tao Yang, Maohua Sun, Qi Shi, Hui Cao, and Hui Wang, all being
our officers or senior counsels, are the principal record owners of our consolidated affiliated Chinese entities.
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As of the date of this annual report, the equity holding structures of each of our significant consolidated affiliated Chinese entities are as follows:
•
•
•
•
Maohua Sun and Tao Yang owned 10.2% and 89.8%, respectively, of Ctrip Commerce.
Ctrip Commerce owned 100% of Shanghai Huacheng.
Min Fan and Qi Shi owned 99.5% and 0.5%, respectively, of Chengdu Ctrip.
Hui Cao and Hui Wang owned 60% and 40%, respectively, of Qunar Beijing.
We believe that the terms of these agreements are no less favorable than the terms that we could obtain from disinterested third parties. The terms
of the agreements with the same title between us and our respective consolidated affiliated Chinese entities are substantially similar except for the
amount of the business loans to the shareholders of each entity and the amount of service fees paid by each entity. We believe that the shareholders of
our consolidated affiliated Chinese entities will not receive any personal benefits from these agreements except as shareholders of our company.
According to our PRC legal counsel, Commerce & Finance Law Offices, these agreements are valid, binding and enforceable under the current laws and
regulations of China as of the date of this annual report. The principal terms of these agreements are described below.
Powers of Attorney. Each of the shareholders of our consolidated affiliated Chinese entities, except for Hui Cao and Hui Wang, signed an
irrevocable power of attorney to appoint Ctrip Travel Network or Ctrip Travel Information, as attorney-in-fact to vote, by itself or any other person to be
designated at its discretion, on all matters of the applicable consolidated affiliated Chinese entities. Each such power of attorney will remain effective as
long as the applicable consolidated affiliated Chinese entity exists, and such shareholders of the applicable consolidated affiliated Chinese entities are
not entitled to terminate or amend the terms of the power of attorneys without prior written consent from us.
As of the date of this annual report, each of the shareholders of Qunar Beijing, Hui Cao and Hui Wang, also signed an irrevocable power of
attorney authorizing an appointee, to exercise, in a manner approved by Qunar, on such shareholder’s behalf the full shareholder rights pursuant to
applicable laws and Qunar Beijing’s articles of association, including without limitation full voting rights and the right to sell or transfer any or all of
such shareholder’s equity interest in Qunar Beijing. Each such power of attorney is effective until such time as such relevant shareholder ceases to hold
any equity interest in Qunar Beijing. The terms of the power of attorney with respect to Qunar Beijing are substantially similar to the terms described in
the foregoing paragraph.
Technical Consulting and Services Agreements. Ctrip Travel Information and Ctrip Travel Network, each a wholly-owned PRC subsidiary of ours,
provide our consolidated affiliated Chinese entities, except for Qunar Beijing, with technical consulting and related services and staff training and
information services on an exclusive basis. We also maintain their network platforms. In consideration for our services, our consolidated affiliated
Chinese entities agree to pay us service fees as calculated in such manner as determined by us from time to time based on the nature of service, which
may be adjusted periodically. For 2020, our consolidated affiliated Chinese entities paid Ctrip Travel Information (after our restructuring of business
lines and restatement of contractual arrangements in 2015) and Ctrip Travel Network (after our restructuring of business lines and restatement of
contractual arrangements in 2015) a quarterly fee based on the number of transportation tickets sold in the quarter, at an average rate of RMB3 (US$0.4)
per ticket. Although the service fees are typically determined based on the number of transportation tickets sold, given the fact that the nominee
shareholders of such consolidated affiliated Chinese entities have irrevocably appointed a designated person to vote on their behalf on all matters they
are entitled to vote on, we have the right to determine the level of service fees paid and therefore receive substantially all of the economic benefits of our
consolidated affiliated Chinese entities in the form of service fees. The services fees paid by all of such consolidated affiliated Chinese entities as a
percentage of their total net income were 89%, 95% and 117% for the years ended December 31, 2018, 2019 and 2020. Ctrip Travel Information or
Ctrip Travel Network, as appropriate, will exclusively own any intellectual property rights arising from the performance of this agreement. The initial
term of these agreements is 10 years and may be renewed automatically in 10-year terms unless we disapprove the extension. We retain the exclusive
right to terminate the agreements at any time by delivering a 30-day advance written notice to the applicable consolidated affiliate Chinese entity.
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As of the date of this annual report, pursuant to the restated exclusive technical consulting and services agreement between Qunar Beijing and
Qunar Software, Qunar Software provides Qunar Beijing with technical, marketing and management consulting services on an exclusive basis in
exchange for service fee paid by Qunar Beijing based on a set formula defined in the agreement subject to adjustment by Qunar Software at its sole
discretion. This agreement will remain in effect until terminated unilaterally by Qunar Software or mutually. The terms of this agreement are
substantially similar to the terms described in the foregoing paragraph.
Equity Pledge Agreements. The shareholders of our consolidated affiliated Chinese entities, except for Hui Cao and Hui Wang, have pledged their
respective equity interests in the applicable consolidated affiliated Chinese entities as a guarantee for the performance of all the obligations under the
other contractual arrangements, including payment by such consolidated affiliated Chinese entities of the technical and consulting services fees to us
under the technical consulting and services agreements, repayment of the business loan under the loan agreements and performance of obligations under
the exclusive option agreements, each agreement as described herein. This agreement shall be valid and binding on the parties, their heirs, successors
and permitted assignees. In the event any of such consolidated affiliated Chinese entity breaches any of its obligations or any shareholder of such
consolidated affiliated Chinese entities breaches his or her obligations, as the case may be, under these agreements, we are entitled to enforce the equity
pledge right and sell or otherwise dispose of the pledged equity interests, and have priority in receiving payment from proceeds from the auction or sale
of all or part of the pledge until the obligations are settled. The pledge shall be established upon registration with the local branch of the SAMR, which
has been completed, and will expire two years after the pledgor and the applicable consolidated affiliated Chinese entities no longer undertake any
obligations under the above-referenced agreements.
As of the date of this annual report, pursuant to the equity interest pledge agreement among Qunar Software, Hui Cao and Hui Wang, Hui Cao and
Hui Wang have pledged their equity interests in Qunar Beijing along with all rights, titles and interests to Qunar Software as guarantee for the
performance of all obligations under the relevant contractual arrangements mentioned herein. This agreement shall be valid and binding on the parties,
their heirs, successors and permitted assignees. Qunar Software may enforce this pledge upon the occurrence of a settlement event or as required by the
PRC law. The pledge shall be established upon registration with the local branch of the SAMR, which has been completed, and will expire when all
obligations under the relevant contractual arrangements have been satisfied. In enforcing the pledge, Qunar Software is entitled to dispose of the pledge
and have priority in receiving payment from proceeds from the auction or sale of all or part of the pledge until the obligations are settled. The terms of
this agreement are substantially similar to the terms described in the foregoing paragraph.
Loan Agreements. Under the loan agreements we entered into with the shareholders of our consolidated affiliated Chinese entities, except for Hui
Cao and Hui Wang, we extended long-term business loans to these shareholders of our consolidated affiliated Chinese entities with the sole purpose of
providing funds necessary for the capitalization or acquisition of such consolidated affiliated Chinese entities. These business loan amounts were
injected into the applicable consolidated affiliated Chinese entities as capital and cannot be accessed for any personal uses. The initial term of the loan
agreements is 10 years and may be renewed automatically in 10-year terms unless we disapprove the extension by written notice in advance. The loan
agreements shall remain effective until the parties have fully performed their respective obligations under the agreement, and the shareholders of such
consolidated affiliated Chinese entities have no right to unilaterally terminate these agreements or repay the loan in advance. The loan agreements shall
be valid and binding on the parties, their successors and permitted assignees. In the event that the PRC government lifts its substantial restrictions on
foreign ownership of the travel agency or value-added telecommunications business in China, as applicable, we will exercise our exclusive option to
purchase all of the outstanding equity interests of our consolidated affiliated Chinese entities, as described in the following paragraph, and the loan
agreements will be canceled in connection with such purchase. However, it is uncertain when, if at all, the PRC government will lift any or all of these
restrictions.
The following table sets forth, as of the date of this report, the amount of each business loan, the date each business loan arrangement was entered
into, the principal, interest, maturity date and outstanding balance of the loan, the borrower and the relevant significant consolidated affiliated Chinese
entity.
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Date of Loan Agreement
Borrower
Significant
Consolidated
Affiliated Chinese
Entity
Principal
Interest
Maturity Date
RMB
US$
(in millions)
May 27, 2019
April 9, 2019
December 14, 2015
March 20, 2017
December 14, 2015
March 20, 2017
December 14, 2015
March 23, 2016
March 23, 2016
Tao Yang
Ctrip Commerce 808.2
Maohua Sun Ctrip Commerce 88.7
Maohua Sun Ctrip Commerce
3.1
Chengdu Ctrip 477.6
Min Fan
Chengdu Ctrip 19.9
Min Fan
2.4
Chengdu Ctrip
Qi Shi
0.1
Chengdu Ctrip
Qi Shi
6.6
Qunar Beijing
Hui Cao
4.4
Qunar Beijing
Hui Wang
123.9
13.6
0.5
73.2
3.0
0.4
0.0
1.0
0.7
None May 26, 2029
None December 13, 2025
None December 13, 2025
None December 13, 2025
None December 13, 2025
None December 13, 2025
None December 13, 2025
None Until repayment notice
None Until repayment notice
Outstanding Balance
RMB
US$
(in millions)
808.2
88.7
3.1
477.6
19.9
2.4
0.1
6.6
4.4
123.9
13.6
0.5
73.2
3.0
0.4
0.0
1.0
0.7
As of the date of this annual report, pursuant to the loan agreement among Qunar Software, Hui Cao and Hui Wang, the loans extended by Qunar
Software to each of Hui Cao and Hui Wang are only repayable by a transfer of such borrower’s equity interest in Qunar Beijing to Qunar Software or its
designated party, in proportion to the amount of the loan to be repaid. This loan agreement will continue in effect indefinitely until such time when
(i) the borrowers receive a repayment notice from Qunar Software and fully repay the loans, or (ii) an event of default (as defined therein) occurs unless
Qunar Software sends a notice indicating otherwise within 15 calendar days after it is aware of such event. The loan agreements shall be valid and
binding on the parties, their successors and permitted assignees. The terms of this loan agreement is substantially similar to the terms described in the
foregoing paragraphs.
Exclusive Option Agreements. As consideration for our entering into the loan agreements described above, each of the shareholders of our
consolidated affiliated Chinese entities, except for Hui Cao and Hui Wang, has granted us an exclusive, irrevocable option to purchase, or designate one
or more person(s) at our discretion to purchase, all of their equity interests in the applicable consolidated affiliated Chinese entities at any time we
desire, subject to compliance with the applicable PRC laws and regulations. We may exercise the option by issuing a written notice to the shareholder of
relevant consolidated affiliated Chinese entity. Subject to the evaluation requirements or other restrictions imposed by applicable PRC laws and
regulations, the purchase price shall be equal to the contribution actually made by the shareholder for the relevant equity interest. Therefore, if we
exercise these options, we may choose to cancel the outstanding loans we extended to the shareholders of such consolidated affiliated Chinese entities
pursuant to the loan agreements as the loans were used solely for equity contribution purposes. The initial term of these agreements is 10 years and may
be renewed automatically in 10-year terms unless we disapprove the extension. This agreement shall be valid and binding on the parties, their heirs,
successors and permitted assignees. We retain the exclusive right to terminate the agreements at any time by delivering a written notice to the
shareholder of applicable consolidated affiliate Chinese entity.
Hui Cao and Hui Wang also entered into an equity option agreement with Qunar, Qunar Software and Qunar Beijing. This equity option
agreement contains arrangements that are similar to that as described in the foregoing paragraph. This agreement will remain effective with respect to
each of Qunar Beijing’s shareholders until all of the equity interest has been transferred or Qunar and Qunar Software terminates the agreement
unilaterally with 30 days’ prior written notice. This agreement shall be valid and binding on the parties, their successors and permitted assignees.
Our consolidated affiliated Chinese entities and their shareholders agree not to enter into any transaction that would affect the assets, obligations,
rights or operations of our consolidated affiliated Chinese entities without our prior written consent. They also agree to accept our guidance with respect
to day-to-day operations, financial management systems and the appointment and dismissal of key employees.
In addition, we also enter into technical consulting and services agreements with our majority or wholly-owned subsidiaries of some of the
consolidated affiliated Chinese entities, such as Chengdu Ctrip International, and these subsidiaries pay us service fees based on the level of services
provided. The existence of such technical consulting and services agreements provides us with the enhanced ability to transfer economic benefits of
these majority or wholly-owned subsidiaries of the consolidated affiliated Chinese entities to us in exchange for the services provided, and this is in
addition to our existing ability to consolidate and extract the economic benefits of these majority or wholly-owned subsidiaries of the consolidated
affiliated Chinese entities. For instance, the consolidated affiliated Chinese entities may cause the economic benefits to be channeled to them in the form
of dividends, which then may be further consolidated and absorbed by us through the contractual arrangements described above.
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Share Incentive Grants
Please refer to “Item 6.B. Directors, Senior Management and Employees — Compensation — Employees’ Share Incentive Plans.”
Employment Agreements
See “Item 6.B. Directors, Senior Management and Employees — Compensation.”
Commissions from Homeinns and BTG
In December 2016, in connection with our share exchange transaction with BTG Hotels (Group) Co., Ltd., or BTG, and Homeinns Hotel Group,
or Homeinns, we exchanged our previously held equity interest in Homeinns for 22% equity interest of BTG. BTG had entered into agreements with us
to provide hotel rooms for our customers. Total commissions from BTG amounted to RMB49 million (US$7 million) for the year ended December 31,
2020. These commissions were paid to us in our ordinary course of business on terms substantially similar to those for our unrelated hotel suppliers.
Commissions from Huazhu and its affiliates
One of our hotel partners, Huazhu Group Limited, or Huazhu, has a director in common with our company and a director who is a family member
of one of our officers. Huazhu has entered into agreements with us to provide hotel rooms for our customers. Total commissions Huazhu paid us
amounted to RMB78 million (US$12 million) for the year ended December 31, 2020. These commissions were paid to us in our ordinary course of
business on terms substantially similar to those for our unrelated hotel suppliers.
Commissions to/from Tongcheng-eLong
In 2018, eLong completed a merger with Tongcheng Network Technology Co., Ltd. and the enlarged group Tongcheng-eLong Holdings Limited,
or Tongcheng-eLong, supersedes eLong, Inc. and LY.com to promote our hotel rooms on their platforms. In exchange for our prior holdings in eLong,
we received an equity method investment in the enlarged group. Total commissions to Tongcheng-eLong paid by us amounted to RMB324 million
(US$50 million) and Tongcheng-eLong paid commissions to us amounting to RMB151 million (US$23 million) for the year ended December 31, 2020.
Settlement with Skysea
In 2019, Skysea Holding International Ltd., a company in which we owned 35% equity interest and to which we provided a shareholder loan in a
principal amount of US$80 million, or Skysea, completed its winding down of the business and we entered into the final settlement with Skysea.
According to the final settlement, we collected the amount due from Skysea and settled the provision and contingent liability of RMB603 million
(recognized as other income), which includes RMB236 million previously made for loan receivable and RMB367 million previously made for
contingent payables.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
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Legal Proceedings
We are not currently a party to any pending material litigation or other legal proceeding and are not aware of any pending litigation or other legal
proceeding that may have a material adverse impact on our business or operations. However, we are and may continue to be subject to various legal
proceedings and claims that are incidental to our ordinary course of business.
Dividend Policy
During the past five years, we have not distributed dividends to our shareholders of record.
We have received dividends from our subsidiaries, which have received consulting or other fees from our consolidated affiliated Chinese entities.
In accordance with current Chinese laws and regulations, our subsidiaries and affiliated entities in China are required to allocate to their statutory reserve
funds at least 10% of their respective after-tax profits for the year determined in accordance with Chinese accounting standards and regulations. Each of
our subsidiaries and affiliated entities in China may stop allocations to its statutory reserve funds if such reserve funds have reached 50% of their
registered capital.
Our board of directors has complete discretion as to whether we will distribute dividends in the future, subject to the approval of our shareholders.
Even if our board of directors determines to distribute dividends, the form, frequency and amount of our dividends will depend upon our future
operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, potential tax implications and other
factors as the board of directors may deem relevant. Any dividend we declare will be paid to the holders of ADSs, subject to the terms of the deposit
agreement, to the same extent as holders of our ordinary shares, less the fees and expenses payable under the deposit agreement. Any dividend we
declare will be distributed by the depositary bank to the holders of our ADSs. Cash dividends on our ordinary shares, including those represented by the
ADSs, if any, will be paid in U.S. dollars.
B. Significant Changes
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. Offer and Listing Details.
Our ADSs have been listed on the Nasdaq Global Market since December 2003 and the Nasdaq Global Select Market since July 2006. Our ADSs
were previously traded under the symbol “CTRP” and are currently traded under the symbol “TCOM,” starting from November 5, 2019. On
December 1, 2015, we effected a change of the ratio of the ADSs to ordinary shares from four ADSs representing one ordinary share to eight ADSs
representing one ordinary share.
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs have been listed on the Nasdaq Global Market since December 2003 and on the Nasdaq Global Select Market since July 2006. Our
ADSs are currently traded under the symbol “TCOM.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
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F. Expenses of the Issue
Not applicable.
ITEM 10.
ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Ordinary Shares
General. All of our outstanding ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form, and are issued
when entered in our register of members. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to the Companies
Act.
Voting Rights. Each ordinary share is entitled to one vote on all matters upon which the ordinary shares are entitled to vote. Voting at any meeting
of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of the meeting or any shareholder or
shareholders collectively present in person or by proxy and holding at least ten percent in par value of the shares giving a right to attend and vote at the
meeting.
A quorum required for a meeting of shareholders consists of at least two shareholders (or, if our company has only one shareholder, that one
shareholder) holding at least one-third of the outstanding voting shares in our company, present in person or by proxy. Shareholders’ meetings may be
convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding in aggregate not less than ten percent
in par value of our voting share capital. Advance notice of at least seven days is required for the convening of any of our shareholders meetings.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary
shares cast in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary
shares cast in a general meeting. A special resolution is required for matters such as a change of name or amending the memorandum and articles of
association. Holders of the ordinary shares may by ordinary resolution, among other things, make changes in the amount of our authorized share capital
and consolidate and divide all or any of our share capital into shares of larger amount than our existing share capital and cancel any authorized but
unissued shares.
Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for
distribution among the holders of ordinary shares shall be distributed among the holders of our ordinary shares on a pro rata basis. If our assets available
for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders
proportionately.
Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on
their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called
upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Shares. We may issue shares on the terms that such shares are subject to redemption, at our option or at
the option of the holders thereof on such terms and in such manner as may be determined, prior to the issue of such shares, by special resolution. Our
company may also repurchase any of our shares (including redeemable shares) provided that the manner of such purchase has been authorized by an
ordinary resolution of our shareholders. Under the Companies Act, the redemption or repurchase of any share may be paid out of our company’s profits
or share premium account or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital if our
company shall, immediately following such payment, be able to pay its debts as they fall due in the ordinary course of business. In addition, under the
Companies Act, no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there
being no shares outstanding, or (c) our company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share
for no consideration.
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Variations of Rights of Shares. If at any time the share capital of our company is divided into different classes of shares, the rights attached to any
class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not our company is being wound-up and except where
our articles of association or the Companies Act impose any stricter quorum, voting or procedural requirements in regard to the variation of rights
attached to a specific class, be varied either with the consent in writing of the holders of 75% of the issued shares of that class or with the sanction of a
special resolution passed at a general meeting of the holders of the shares of that class.
Shareholder Rights Plan
On November 23, 2007, our board of directors declared a dividend of one ordinary share purchase right, or a Right, for each of our ordinary shares
outstanding at the close of business on December 3, 2007 pursuant to a rights agreement. As long as the Rights are attached to the ordinary shares, we
will issue one Right (subject to adjustment) with each new ordinary share so that all such ordinary shares will have attached Rights. When exercisable,
each Right will entitle the registered holder, except the acquirer that triggers the exercise of the Rights, to purchase from us one ordinary share at a price
of US$700 per ordinary share, subject to adjustment. As a result, the acquirer will be greatly diluted, and other existing shareholders who exercise the
Rights will not be diluted, thereby effectively reducing the risk of a potential hostile takeover. On August 7, 2014, we entered into a First Amendment
and, subsequently on the same day, a Second Amendment to the Rights Agreement dated as of November 23, 2007 between the Bank of New York
Mellon and us. Through these two amendments, we (i) extended the term of our rights agreement for another ten years and the Rights will expire on
August 6, 2024, subject to the right of our board of directors to extend the rights agreement for another ten years prior to its expiration; (ii) modified the
trigger threshold of the Rights to allow more flexibility. Specifically, shareholders who file or are entitled to file beneficial ownership statement on
Schedule 13G pursuant to Rule 13d-1(b)(1) of the Exchange Act, typically institutional investors with no intention to acquire control of the issuer, will
be able to beneficially own up to 20% of our total outstanding shares before the Rights are triggered, while all other shareholders must maintain their
beneficial ownership at a level below 10% of our total outstanding shares before the Rights are triggered, among other things; and (iii) included Booking
Holdings Inc. (formerly known as the Priceline Group Inc.), or Booking, and its subsidiaries in the definition of “Exempted Person” under the then
effective rights agreement as long as their beneficial ownership do not exceed 10% of our total outstanding shares. On May 29, 2015, October 26, 2015,
and December 23, 2015, we entered into a Third Amendment, a Fourth Amendment, and a Fifth Amendment to the Rights Agreement with the Bank of
New York Mellon, respectively, for the purposes of amending the definition of “Exempted Person.” Accordingly, in so far as Booking and any of its
subsidiaries are concerned in connection with the determination of Exempt Person, the term “Exempt Person” will be applied only to the extent that the
number of ordinary shares beneficially owned by such Exempt Person (excluding the number of our ADSs or the ordinary shares that are beneficially
owned by Booking and any of its subsidiaries due to any such entity’s ownership or conversion of that certain note issued by us pursuant to a convertible
note purchase agreement dated December 9, 2015 between a subsidiary of Booking and us) at all times does not exceed fifteen percent (15%) of the
ordinary shares then outstanding in the aggregate and in so far as Baidu and any of its subsidiaries are concerned in connection with the determination of
Exempt Person, the term “Exempt Person” will be applied only to the extent that the number of ordinary shares beneficially owned by such Exempt
Person at all times does not exceed twenty-seven percent (27%) of the ordinary shares then outstanding in the aggregate. On August 30, 2019 and
November 13, 2019, we entered into a Sixth Amendment and a Seventh Amendment to the Rights Agreement with the Bank of New York Mellon,
respectively, for purposes of amending the definition of “Exempted Person.” Accordingly, in connection with the share exchange transaction with
Naspers, Naspers, MIH Internet SEA Private Limited, and their respective subsidiaries have been included in the definition of “Exempted Person” to the
extent that the number of ordinary shares beneficially owned by such Exempt Person at all times does not exceed eleven percent (11%) of the ordinary
shares then outstanding in the aggregate, and removed Booking and its subsidiaries from the definition of “Exempted Person.”
The Rights were not distributed in response to any specific effort to acquire control of our company.
Registered Office and Objects
Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand
Cayman, KY1-1104, Cayman Islands, or at such other place as our directors may from time to time decide. The objects for which our company is
established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Act or any other law of the
Cayman Islands.
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Board of Directors
Our board of directors currently consists of nine directors. Our board of directors may exercise all the powers of the company to borrow money, to
mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock or other securities
whether outright or as security for any debt, liability or obligation of our company or of any third party. A director may vote with respect to any contract
or transaction in which he or she is interested as long as he or she has made a declaration of the nature of such interest. A director is not required to hold
any shares in our company by way of qualification, and there is no requirement for a director to retire at any age limit.
We have a compensation committee that assists the board in reviewing and approving the compensation structure and form of compensation of our
directors and executive officers. Members of the compensation committee are not prohibited from direct involvement in determining their own
compensation. Our chief executive officer may not be present at any committee meeting during which her compensation is deliberated.
For details of our board committees, see “Item 6.C. Directors, Senior Management and Employees — Board Practices — Board of Directors.”
C. Material Contracts
Other than in the ordinary course of business and other than the one described under this item, in “Item 4. Information on the Company” and
“Item 7.B. — Major Shareholders and Related Party Transactions — Related Party Transactions” or elsewhere in this annual report, we have not entered
into any material contract during the two years immediately preceding the date of this annual report: (i) a share purchase agreement dated April 26,
2019, among our company, MIH Internet SEA Private Limited and MIH B2c Holdings B.V., (ii) a facility agreement dated July 5, 2019 among our
company (as borrower), Bank of Communications Co., Ltd. Hong Kong Branch, The Bank of East Asia, Limited, China Construction Bank (Asia)
Corporation Limited, The HongKong and Shanghai Banking Corporation Limited, The Korea Development Bank, Bank of China Limited (as mandated
lead arrangers and bookrunners), and other parties thereto, (iii) a registration rights agreement dated August 30, 2019 between our company and MIH
Internet SEA Private Limited, (iv) a cooperation agreement dated August 30, 2019 among our company, MIH Internet SEA Private Limited and Myriad
International Holdings B.V., (v) the sixth amendment to the rights agreement dated as of August 30, 2019 between our company and The Bank of New
York, as rights agent, (vi) an underwriting agreement dated September 26, 2019 among our company, Goldman Sachs (Asia) L.L.C. and J.P. Morgan
Securities LLC for the sale of 31,304,352 ADSs, (vii) the seventh amendment to the rights agreement dated as of November 13, 2019 between our
company and The Bank of New York, as rights agent, (viii) a facility agreement dated April 3, 2020 among our company (as borrower), Standard
Chartered Bank (Hong Kong) Limited, Industrial and Commercial Bank of China (Macau) Limited, and China Construction Bank (Asia) Corporation
Limited (as original mandated lead arrangers, bookrunners, and underwriters), and other parties thereto, (ix) Indenture dated July 20, 2020 constituting
US$500 million 1.50% Exchangeable Senior Notes due 2027, and (x) Supplemental Indenture dated December 15, 2020 constituting US$500 million
1.50% Exchangeable Senior Notes due 2027.
D. Exchange Controls
See “Item 4.B. Information on the Company — Business Overview — PRC Government Regulations — Regulations of Foreign Currency
Exchange and Dividend Distribution.”
E. Taxation
The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs or
ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change.
This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences
under state, local and other tax laws not addressed herein.
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Cayman Islands Taxation
According to Maples and Calder (Hong Kong) LLP, the Cayman Islands currently levies no taxes on individuals or corporations based upon
profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material
to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution
brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaty with any country that is applicable to
any payments made to or by us.
We have received an undertaking from the Clerk of the Cabinet of the Government of the Cayman Islands that, in accordance with section 6 of the
Tax Concessions Act of the Cayman Islands, for a period of 20 years from December 12, 2019, no law which is enacted in the Cayman Islands imposing
any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations and, in addition, that no tax to be levied on profits,
income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) on or in respect of the shares, debentures or
other obligations of our company or (ii) by way of the withholding in whole or in part of any relevant payment of dividend or other distribution of
income or capital by our company to our members or any payment (as defined in the Tax Concessions Act).
PRC Taxation
If the PRC tax authorities determine that our Cayman Islands holding company is a “resident enterprise” for PRC enterprise income tax purposes,
a withholding tax of 10% may be imposed on dividends that non-PRC resident enterprise holders of our ADSs receive from us and on gains realized on
their sale or other disposition of ADSs, if such income is considered as income derived from within China. See “Item 3.D. Key Information — Risk
factors — Risks Relating to Our Corporate Structure — Our subsidiaries and consolidated affiliated Chinese entities in China are subject to restrictions
on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity requirements.”
U.S. Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of our
ADSs or ordinary shares by a U.S. Holder (as defined below) that will hold our ADSs or ordinary shares as “capital assets” (generally, property held for
investment). This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S. Treasury regulations promulgated
thereunder, or Regulations, published positions of the Internal Revenue Service, or the IRS, court decisions and other applicable authorities, all as
currently in effect as of the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect).
This discussion does not describe all of the U.S. federal income tax considerations that may be applicable to U.S. Holders in light of their
particular circumstances or U.S. Holders subject to special treatment under U.S. federal income tax law, such as:
•
•
•
•
•
•
•
banks, insurance companies and other financial institutions;
tax-exempt entities;
real estate investment trusts;
regulated investment companies;
dealers or traders in securities;
certain former citizens or residents of the United States;
persons that elect to mark their securities to market;
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•
•
•
persons holding our ADSs or ordinary shares as part of a “straddle,” conversion or other integrated transaction;
persons that have a functional currency other than the U.S. dollar; and
persons that actually or constructively own 10% or more of our equity (by vote or value).
In addition, this discussion does not address any U.S. state or local or non-U.S. tax considerations (other than the discussion below relating to
certain withholding rules and the U.S.-PRC income tax treaty, or the Treaty) or any U.S. federal estate, gift, alternative minimum tax or Medicare
contribution tax considerations. U.S. Holders should consult their tax advisors concerning the U.S. federal income tax considerations to them in light of
their particular situation as well as any considerations arising under the laws of any other taxing jurisdiction.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is for U.S. federal income tax purposes:
•
•
•
•
an individual who is a citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the
United States, any state thereof, or the District of Columbia;
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust that (i) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons or
(ii) has a valid election in effect under applicable Regulations to be treated as a U.S. person.
If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our ADSs or ordinary shares,
the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partners in a
partnership holding our ADSs or ordinary shares should consult their tax advisors regarding the tax considerations generally applicable to them of the
ownership and disposition of our ADSs or ordinary shares.
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit
agreement and any related agreement have been and will be complied with in accordance with its terms. If a U.S. Holder holds ADSs, such holder
should be treated as the beneficial holder of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes.
Distributions
Subject to the discussion below under “— Passive Foreign Investment Company Rules,” any cash distributions (including the amount of any PRC
tax withheld if we are deemed to be a PRC resident enterprise under PRC tax law) paid on our ADSs or ordinary shares out of our current or
accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in a U.S. Holder’s gross income
as dividend income on the day actually or constructively received by such holder. Because we do not intend to determine our earnings and profits on the
basis of U.S. federal income tax principles, any distribution paid will generally be treated as dividend income for U.S. federal income tax purposes.
Dividends received on our ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations under the Code.
Individuals and other non-corporate recipients will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income,”
provided that certain conditions are satisfied, including that (i) our ADSs or ordinary shares are readily tradable on an established securities market in
the United States, or, in the event that we are deemed to be a PRC resident enterprise under the PRC tax law, we are eligible for the benefits of the
Treaty, (ii) we are neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend was
paid and the preceding taxable year, and (iii) certain holding period requirements are met. Our ADSs, but not our ordinary shares, are listed on the
Nasdaq Global Select Market so we anticipate that our ADSs should qualify as readily tradable on an established securities market in the United States,
although there can be no assurances in this regard. In the event that we are deemed to be a PRC resident enterprise under PRC tax law, a U.S. Holder
may be subject to PRC withholding taxes on dividends paid on our ADSs or ordinary shares. If we are deemed to be a PRC resident enterprise, we may,
however, be eligible for the benefits of the Treaty. If we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether
such shares are represented by our ADSs, would be eligible for the reduced rates of taxation applicable to qualified dividend income, as discussed
above.
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For U.S. foreign tax credit purposes, dividends will generally be treated as income from foreign sources and will generally constitute passive
category income. Depending on a U.S. Holder’s particular circumstances, such holder may be eligible, subject to a number of complex limitations, to
claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on our ADSs or ordinary shares. If a U.S. Holder
does not elect to claim a foreign tax credit for foreign tax withheld, such holder is permitted instead to claim a deduction, for U.S. federal income tax
purposes, for the foreign tax withheld, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules
governing the foreign tax credit are complex. U.S. Holders should consult their tax advisors regarding the availability of the foreign tax credit under
their particular circumstances.
Sale or Other Taxable Dispositions
Subject to discussion below under “— Passive Foreign Investment Company Rules,” a U.S. Holder will generally recognize capital gain or loss
upon the sale or other taxable disposition of our ADSs or ordinary shares in an amount equal to the difference, if any, between the amount realized upon
the disposition and such holder’s adjusted tax basis in such ADSs or ordinary shares. Any capital gain or loss will be long-term capital gain or loss if the
U.S. Holder held the ADSs or ordinary shares for more than one year and will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes.
In the event that we are deemed to be a PRC resident enterprise under PRC tax law and gain from the disposition of the ADSs or ordinary shares is
subject to tax in China, such gain may be treated as PRC-source gain for U.S. foreign tax credit purposes under the Treaty. The deductibility of a capital
loss may be subject to limitations. U.S. Holders should consult their tax advisors regarding the tax considerations if a foreign tax is imposed on a
disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company Rules
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year, if either
(i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined
on the basis of a quarterly average) during such year produce or are held for the production of passive income. 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 company’s unbooked intangibles associated with active business activity are taken into
account as a non-passive asset. 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, at least 25% (by value) of the stock.
Although the law in this regard is not entirely clear, we treat our consolidated affiliated Chinese entities as being owned by us for U.S. federal
income tax purposes because we control their management decisions and we are entitled to substantially all of their economic benefits and, as a result,
we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner
of our consolidated affiliated Chinese entities for U.S. federal income tax purposes, we would likely be treated as a PFIC for our current taxable year
and any subsequent taxable years.
Assuming we are the owner of our consolidated affiliated Chinese entities for U.S. federal income tax purposes, based on our income and assets,
and the value of our ADSs, we do not believe that we were classified as a PFIC for the taxable year ending December 31, 2020 and we do not expect to
be a PFIC for the foreseeable future. Although we do not anticipate becoming a PFIC, changes in the nature of our income or assets or the value of our
ADSs may cause us to become a PFIC for the current or any subsequent taxable year. Recent fluctuations in the market price of our ADSs or ordinary
shares increased our risk of becoming a PFIC. The market price of the ADSs and ordinary shares may continue to fluctuate considerably; consequently,
we cannot assure you of our PFIC status for any taxable year. Under circumstances where revenues from activities that produce passive income
significantly increase relative to our revenues from activities that produce non-passive income, or where we determine not to expend significant amounts
of cash for working capital or other purposes, our risk of becoming classified as a PFIC may substantially increase.
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If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs, or ordinary shares, such holder will be subject to special tax
rules with respect to any “excess distribution” that such holder receives and any gain such holder realizes from a sale or other disposition (including a
pledge) of our ADSs or ordinary shares, unless such holder makes a “mark-to-market” election as discussed below. Distributions a U.S. Holder receives
in a taxable year that are greater than 125% of the average annual distributions such holder received during the shorter of the three preceding taxable
years or such holder’s holding period for the ADSs or ordinary shares will be treated as an excess distribution. Under these special tax rules:
•
•
•
the excess distribution or gain will be allocated ratably over such holder’s holding period for the ADSs or ordinary shares;
amounts allocated to the current taxable year, and any taxable years in such holder’s holding period prior to the first taxable year in which
we are classified as a PFIC, or a pre-PFIC year, will be taxable as ordinary income; and
amounts 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
such holder for that year, and such amounts will be increased by an additional tax equal to interest on the resulting tax deemed deferred
with respect to such years.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our non-U.S. subsidiaries are also
PFICs, such holder will be treated as owning a proportionate amount (by value) of the shares of each such non-U.S. subsidiary classified as a PFIC for
purposes of the application of these rules.
Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock of a PFIC to
elect out of the tax treatment discussed in the two preceding paragraphs. If a U.S. Holder makes a valid mark-to-market election for the ADSs, such
holder will include in income each year an amount equal to the excess, if any, of the fair market value of the ADSs as of the close of such holder’s
taxable year over such holder’s adjusted basis in such ADSs. The U.S. Holder will be allowed a deduction for the excess, if any, of the adjusted basis of
the ADSs over their fair market value as of the close of the taxable year. However, deductions will be allowable only to the extent of any net
mark-to-market gains on the ADSs included in the U.S. Holder’s income for prior taxable years. Amounts included in the U.S. Holder’s income under a
mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs, will be treated as ordinary income. Ordinary loss treatment
will also apply to the deductible portion of any mark-to-market loss on the ADSs, as well as to any loss realized on the actual sale or disposition of the
ADSs, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ADSs. A U.S. Holder’s
basis in the ADSs will be adjusted to reflect any such gain or loss amounts. If a U.S. Holder makes a valid mark-to-market election, and we
subsequently cease to be classified as a PFIC, such holder will not be required to take into account the mark-to-market income or loss described above
during any period that we are not classified as a PFIC.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least
15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable Regulations. Our ADSs are
listed on the Nasdaq Global Select Market, which is a qualified exchange for these purposes, and, consequently, assuming that the ADSs are regularly
traded, it is expected that the mark-to-market election would be available to U.S. Holders of ADSs (but not our ordinary shares) if we are or become a
PFIC.
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 such holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC
for U.S. federal income tax purposes.
We do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections in the event that we are classified
as a PFIC.
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If we are classified as a PFIC, a U.S. Holder must file an annual report with the IRS. U.S. Holders should consult their tax advisors concerning the
U.S. federal income tax considerations of owning and disposing of our ADSs or ordinary shares if we are or become a PFIC, including the unavailability
of a qualified electing fund election, the possibility of making a mark-to-market election and the annual PFIC filing requirements, if any.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to
file reports and other information with SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal
year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at SEC’s public
reference room located at Room 1580, 100F Street, NE, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C.
Public Reference Room by calling the Commission at 1-800-SEC-0330. SEC also maintains a website at www.sec.gov that contains reports, proxy and
information statements, and other information regarding registrants that make electronic filings with SEC using its EDGAR system. 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.
Our consolidated financial statements have been prepared in accordance with U.S. GAAP.
We will furnish our shareholders with annual reports, which will include a review of operations and annual audited consolidated financial
statements prepared in conformity with U.S. GAAP.
I. Subsidiary Information
Not applicable.
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our exposure to interest rate risk primarily relates to interest income generated by bank deposit and short term investment, as
well as interest expenses associated with floating rate based bank borrowings and syndicated loans. For information about these notes and bank
borrowings, see “Item 5.F. Operating and Financial Review and Prospects—Tabular Disclosure of Contractual Obligations.” We have used interest swap
contracts to hedge our exposure to interest rate risk. Based on our cash balance as of December 31, 2020, a one basis point decrease in interest rates
would result in a RMB5 million (US$1 million) decrease in our interest income on an annual basis. Our future interest income may fluctuate in line with
changes in interest rates. However, the risk associated with fluctuating interest rates is principally confined to our interest-bearing cash deposits, and,
therefore, our exposure to interest rate risk is limited.
Foreign Exchange Risk. The majority of our revenues are denominated in Renminbi. While a portion of our financial assets, financial liabilities
and dividend payments are denominated in U.S. dollars, we may use foreign exchange spot, forwards, or other contracts to hedge our exposure to
foreign currency risk where we deem necessary. Any significant revaluation of Renminbi against U.S. dollar may adversely affect our cash flow,
earnings, and financial position, and the value of, and any dividends payable on, our ordinary shares and ADSs. In 2020, foreign exchange losses
accounted for 1% of our net loss. As of December 31, 2020, a 1% strengthening or weakening of Renminbi against U.S. dollars would have increased or
decreased our net loss by 0.5%. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Doing Business in China—Future movements in
exchange rates between U.S. dollars and Renminbi may adversely affect the value of our Shares or ADSs.”
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Investment Risk. As of December 31, 2020, our equity method investments totaled US$2.9 billion. We periodically review our investments for
impairment. Unrealized gains on transactions between the affiliated entity and us are eliminated to the extent of our interest in the affiliated entity;
unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. We are unable to control these
factors and an impairment charge recognized by us will impact our operating results and financial position.
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Fees paid by our ADS holders
The Bank of New York Mellon, 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 depositary collects fees for making
distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The
depositary may collect its annual fee for depositary services by deducting from cash distributions or by directly billing investors or by charging the
book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those
services are paid.
Persons depositing or withdrawing shares must pay:
$ 5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
For:
☐ Issuance of ADSs, including issuances resulting from a distribution of
shares or rights or other property
☐ Cancellation of ADSs for the purpose of withdrawal, including if the
deposit agreement terminates
$ 0.02 (or less) per ADS
☐ Any cash distribution to ADS registered holders
A fee equivalent to the fee that would be payable if securities distributed to
you had been shares and the shares had been deposited for issuance of ADSs
☐ Distribution of securities distributed to holders of deposited securities
which are distributed by the depositary to ADS registered holders
$ 0.02 (or less) per ADSs per calendar year
☐ Depositary services
Registration or transfer fees
Expenses of the depositary
☐ Transfer and registration of shares on our share register to or from the
name of the depositary or its agent when you deposit or withdraw shares
☐ Cable, telex and facsimile transmissions (when expressly provided in
the deposit agreement)
☐ Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian have to
pay on any ADS or share underlying an ADS, for example, stock transfer
taxes, stamp duty or withholding taxes
☐ As necessary
Any charges incurred by the depositary or its agents for servicing the
deposited securities
☐ As necessary
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Fees and Payments from the Depositary to Us
We expect to receive from the depositary a reimbursement of approximately US$6 million, net of withholding tax, for our continuing annual stock
exchange listing fees and our expenses incurred in connection with investor relationship programs for 2020. In addition, the depositary has agreed to
reimburse us annually for our expenses incurred in connection with investor relationship programs in the future. The amount of such reimbursements is
subject to certain limits.
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
PART II.
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, our management, including our chief executive officer, Jane Jie Sun, and our chief
financial officer, Cindy Xiaofan Wang, has performed an assessment of the effectiveness of our disclosure controls and procedures, as that term is
defined in Rules 13a-15(e) of the Exchange Act, as of the end of the period covered by this annual report. Based on that assessment, our management
has concluded that our disclosure controls and procedures were effective as of December 31, 2020.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of
our company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the
consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management conducted an assessment of the effectiveness of our company’s internal control over financial reporting as of December 31, 2020
based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31,
2020.
PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting firm, audited the effectiveness of internal control over
financial reporting as of December 31, 2020, as stated in their report.
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Attestation Report of the Registered Public Accounting Firm
PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting firm, audited the effectiveness of internal control over
financial reporting as of December 31, 2020, as stated in their report that appears on page F-2 of this annual report.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d), under the Exchange Act, our management, including our chief executive officer and our chief financial officer,
also conducted an assessment of our internal control over financial reporting to determine whether any changes occurred during the period covered by
this report have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that assessment,
it has been determined that there has been no such change during the period covered by this annual report.
ITEM 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
See “Item 6.C. Directors, Senior Management and Employees — Board Practices.”
ITEM 16B.
CODE OF ETHICS
Our board of directors has adopted a code of ethics that applies to our directors, officers, employees and agents, including certain provisions that
specifically apply to our chief executive officer, chief financial officer, financial controller, vice presidents and any other persons who perform similar
functions for us. We have filed our code of business conduct and ethics as an exhibit to our annual report on Form 20-F for our fiscal year 2003, and
posted the code on our investor relations website at investors.trip.com. On March 3, 2009, our board of directors approved amendments to our code of
ethics and on July 13, 2012, the code of ethics was further amended and restated by our board of directors. We have filed our amended and restated code
of business conduct and ethics as an exhibit to our annual report on Form 20-F for our fiscal year 2012, and posted the amended and restated code on
our investor relations website at investors.trip.com. On October 31, 2017, our board of directors approved our further amended and restated code of
business conduct and ethics. We have filed our amended and restated code of business conduct and ethics as Exhibit 11.1 to our annual report on
Form 20-F for our fiscal year 2017. You can also find the amended and restated code of business conduct and ethics on our investor relations website at
investors.trip.com.
ITEM 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by
PricewaterhouseCoopers Zhong Tian LLP, our principal accountant, for the periods indicated.
Audit Fees(1)
Audit Related Fees(2)
Tax Fees(3)
All Other Fees(4)
2019
RMB
For the Year Ended December 31,
2020
RMB
20,487,434 20,684,454 3,170,031
7,920,989 3,670,983 562,603
1,892,987 1,095,043 167,823
—
2020
US$
—
—
Notes:
(1)
(2)
(3)
(4)
“Audit Fees” represent the aggregate fees incurred for each of the fiscal years listed for professional services rendered by our principal accountant for the interim review of quarterly
financial statements and the audit of our annual financial statements and other statutory audits of our subsidiaries.
“Audit Related Fees” represent the aggregate fees incurred in each of the fiscal years listed for assurance and related services that are provided by our principal accountant that are
reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”
“Tax Fees” represent the aggregate fees incurred in each of the fiscal years listed for professional services rendered by our principal accountant for tax compliance, tax advice and tax
planning.
“All Other Fees” represent the aggregate fees incurred in each of the fiscal years listed for products and services provided by our principal accountant, other than the services reported
in (1), (2) and (3).
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Our audit committee pre-approves all audit and permissible non-audit services provided by the principal accountant. These services may include
audit services, audit-related services and tax services, as well as, to a very limited extent, specifically designated non-audit services which, in the
opinion of the audit committee, will not impair the independence of the principal accountant. The principal accountant and our management are required
to report to the audit committee on the quarterly basis regarding the extent of services provided by the principal accountant in accordance with this
pre-approval.
ITEM 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E.
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G.
CORPORATE GOVERNANCE
As a Cayman Islands company listed on Nasdaq, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq
rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in
the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. In lieu of (i) the
requirements of Rule 5605(b) of the Nasdaq Rules that a majority of a Nasdaq-listed company’s board of directors be independent directors as defined in
Rule 5605(a)(2), and (ii) the requirements of Rule 5635(c) of the Nasdaq Rules that shareholder approval be required prior to the issuance of securities
when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended,
pursuant to which stock may be acquired by officers, directors, employees, or consultants, we intend to follow our home country practices with respect
to the composition of our board of directors and approval for adoption and material amendment to our equity-based compensation plans. Our Cayman
Islands counsel has provided a letter to the Nasdaq Stock Market certifying that under Cayman Islands law, we are not required to follow or comply with
the requirements of the Rule 5600 series of the Nasdaq Rules (except for those rules that are required to be followed pursuant to Rule 5615(a)(3)).
Nasdaq has acknowledged the receipt of this letter.
Other than the home country practices described above, we are not aware of any significant ways in which our corporate governance practices
differ from those followed by U.S. domestic companies under the Nasdaq Rules.
ITEM 16H.
MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17.
FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
PART III.
ITEM 18.
FINANCIAL STATEMENTS
The consolidated financial statements for Trip.com Group Limited and its subsidiaries are included at the end of this annual report.
112
Table of Contents
ITEM 19.
EXHIBITS
Exhibit
Number
1.1*
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
4.1
4.2
4.3
Document
Second Amended and Restated Memorandum and Articles of Association of the Registrant adopted by the shareholders of the Registrant
on December 21, 2015
Specimen American Depositary Receipt of the Registrant (incorporated by reference to Form 424b3 (File No. 333-233932) filed with the
Securities and Exchange Commission on October 31, 2019)
Specimen Stock Certificate of the Registrant (incorporated by reference to Exhibit 2.2 to our Annual Report on Form 20-F (File
No. 001-33853) filed with the Securities and Exchange Commission on April 9, 2020)
Rights Agreement dated as of November 23, 2007 between the Registrant and The Bank of New York, as Rights Agent (incorporated by
reference to Exhibit 4.1 to our Report of Foreign Private Issuer on Form 6-K furnished to the Securities and Exchange Commission on
November 23, 2007)
First Amendment to the Rights Agreement dated as of August 7, 2014 between the Registrant and The Bank of New York, as Rights Agent
(incorporated by reference to Exhibit 4.1 to our Report of Foreign Private Issuer on Form 8-A/A furnished to the Securities and Exchange
Commission on August 8, 2014)
Second Amendment to the Rights Agreement dated as of August 7, 2014 between the Registrant and The Bank of New York, as Rights
Agent (incorporated by reference to Exhibit 4.2 to our Report of Foreign Private Issuer on Form 8-A/A furnished to the Securities and
Exchange Commission on August 8, 2014)
Third Amendment to the Rights Agreement dated as of May 29, 2015 between the Registrant and The Bank of New York, as Rights Agent
(incorporated by reference to Exhibit 4.3 to our Report of Foreign Private Issuer on Form 8-A/A furnished to the Securities and Exchange
Commission on June 4, 2015)
Fourth Amendment to the Rights Agreement dated as of October 26, 2015 between the Registrant and The Bank of New York, as Rights
Agent (incorporated by reference to Exhibit 4.3 to our Report of Foreign Private Issuer on Form 8-A/A furnished to the Securities and
Exchange Commission on October 27, 2015)
Fifth Amendment to the Rights Agreement dated as of December 23, 2015 between the Registrant and The Bank of New York, as Rights
Agent (incorporated by reference to Exhibit 4.3 to our Report of Foreign Private Issuer on Form 8-A/A furnished to the Securities and
Exchange Commission on December 23, 2015)
Sixth Amendment to the Rights Agreement dated as of August 30, 2019 between the Registrant and The Bank of New York, as Rights
Agent (incorporated by reference to Exhibit 4.1 to our Report of Foreign Private Issuer on Form 8-A/A furnished to the Securities and
Exchange Commission on November 14, 2019)
Seventh Amendment to the Rights Agreement dated as of November 13, 2019 between the Registrant and The Bank of New York, as
Rights Agent (incorporated by reference to Exhibit 4.2 to our Report of Foreign Private Issuer on Form 8-A/A furnished to the Securities
and Exchange Commission on November 14, 2019)
Deposit Agreement dated as of December 8, 2003, as amended and restated as of August 11, 2006, and as further amended and restated as
of December 3, 2007, among the Registrant, The Bank of New York as Depositary, and all Owners and Beneficial Owners from time to
time of American Depositary Shares issued thereunder (incorporated by reference to Exhibit 2.4 to our Annual Report on Form 20-F (File
No. 001-33853) filed with the Securities and Exchange Commission on April 29, 2008)
Description of Securities (incorporated by reference to Exhibit 2.12 to our Annual Report on Form 20-F (File No. 001-33853) filed with
the Securities and Exchange Commission on April 9, 2020)
Form of Indemnification Agreement with the Registrant’s directors and executive officers (incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form F-1 (File No. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003)
Translation of Form of Labor Contract for Employees of the Registrant’s subsidiaries in China (incorporated by reference to Exhibit 10.3
to our Registration Statement on Form F-1 (File No. 333-110455) filed with the Securities and Exchange Commission on November 13,
2003)
Employment Agreement between the Registrant and James Jianzhang Liang (incorporated by reference to Exhibit 10.4 to our Registration
Statement on Form F-1 (File No. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003)
113
Table of Contents
Exhibit
Number
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
Document
Employment and Confidentiality Agreement between the Registrant and Jane Jie Sun (incorporated by reference to Exhibit 4.5 to our
Annual Report on Form 20-F (File No. 000-50483) filed with the Securities and Exchange Commission on June 26, 2006)
Employment Agreement, between the Registrant and Min Fan (incorporated by reference to Exhibit 10.6 to our Registration Statement on
Form F-1 (File No. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003)
Translation of Executed Form of Technical Consulting and Services Agreement between a wholly-owned subsidiary of the Registrant and
a consolidated affiliated Chinese entity of the Registrant, as currently in effect, and a schedule of all executed technical consulting and
services agreements adopting the same form in respect of a consolidated affiliated Chinese entity of the Registrant (incorporated by
reference to Exhibit 4.6 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on
April 9, 2020)
Translation of Executed Form of Loan Agreement between a wholly-owned subsidiary of the Registrant and shareholders of a
consolidated affiliated Chinese entity of the Registrant, as currently in effect, and a schedule of all executed loan agreements adopting the
same form in respect of a consolidated affiliated Chinese entity of the Registrant (incorporated by reference to Exhibit 4.7 to our Annual
Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 9, 2020)
Translation of Executed Form of Exclusive Call Option Agreement among a wholly-owned subsidiary of the Registrant, a consolidated
affiliated Chinese entity of the Registrant and a shareholder of the consolidated affiliated Chinese entity, as currently in effect, and a
schedule of all executed equity pledge agreements adopting the same form in respect of a consolidated affiliated Chinese entity of the
Registrant (incorporated by reference to Exhibit 4.8 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and
Exchange Commission on April 9, 2020)
Translation of Executed Form of Equity Pledge Agreement between a wholly-owned subsidiary of the Registrant and a shareholder of a
consolidated affiliated Chinese entity of the Registrant, as currently in effect, and a schedule of all executed equity pledge agreements
adopting the same form in respect of a consolidated affiliated Chinese entity of the Registrant (incorporated by reference to Exhibit 4.9 to
our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 9, 2020)
Translation of Executed Form of Power of Attorney by a shareholder of a consolidated affiliated Chinese entity of the Registrant, as
currently in effect, and a schedule of all executed power of attorney adopting the same form in respect of a consolidated affiliated Chinese
entity of the Registrant (incorporated by reference to Exhibit 4.10 to our Annual Report on Form 20-F (File No. 001-33853) filed with the
Securities and Exchange Commission on April 9, 2020)
Confidentiality and Non-Competition Agreement, effective as of September 10, 2003, between the Registrant and Qi Ji (incorporated by
reference to Exhibit 10.16 to our Registration Statement on Form F-1 (File No. 333-110455) filed with the Securities and Exchange
Commission on November 13, 2003)
Form of Director Agreement between the Registrant and its director (incorporated by reference to Exhibit 4.20 to our Annual Report on
Form 20-F filed with the Securities and Exchange Commission on May 11, 2004)
Translation of State Land Use Right Assignment Contract dated February 25, 2008 between Nantong Land Resource Bureau and Ctrip
Information Technology (Nantong) Co., Ltd. (incorporated by reference to Exhibit 4.21 to our Annual Report on Form 20-F (File
No. 001-33853) filed with the Securities and Exchange Commission on April 29, 2008)
2007 Share Incentive Plan of the Registrant, as amended and restated as of November 17, 2008 (incorporated by reference to Exhibit 4.21
to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on May 26, 2009)
Translation of State-Owned Construction Land Use Right Transfer Contract dated September 30, 2011 between Chengdu Ctrip
Information Technology Co., Ltd. and Chengdu Land Resources Bureau (incorporated by reference to Exhibit 4.30 to our Annual Report
on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on March 30, 2012)
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Table of Contents
Exhibit
Number
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
Document
Indenture dated June 24, 2015 constituting US$400 million 1.99% Convertible Senior Notes due 2025 (incorporated by reference to
Exhibit 4.44 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 22,
2016)
Standstill Agreement dated as of October 26, 2015 between Baidu, Inc. and the Registrant (incorporated by reference to Exhibit 3 to
Schedule 13D (File No. 005-79455) filed by Baidu, Inc. with the Securities and Exchange Commission on November 4, 2015)
Registration Rights Agreement dated as of October 26, 2015 between Baidu Holdings Limited and the Registrant (incorporated by
reference to Exhibit 4 to Schedule 13D (File No. 005-79455) filed by Baidu, Inc. with the Securities and Exchange Commission on
November 4, 2015)
Convertible Note Purchase Agreement dated December 9, 2015 between Ctrip.com International, Ltd. and Priceline Group Treasury
Company B.V. for the issuance and purchase of US$500 million 2.00% convertible note due 2025 (incorporated by reference to Exhibit 1
to Schedule 13D/A (File No. 005-79455) filed by The Priceline Group Inc. (currently known as Booking Holdings Inc.) with the Securities
and Exchange Commission on December 14, 2015)
Convertible Note Purchase Agreement dated December 9, 2015 among Ctrip.com International, Ltd., Gaoling Fund, L.P. and YHG
Investment, L.P. for the issuance and purchase of US$500 million 2.00% convertible notes due 2025 (incorporated by reference to Exhibit
4.50 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 22, 2016)
Framework Agreement for Treatment of Qunar Employee Shares and Equity Awards dated December 9, 2015 between the Registrant and
Qunar Cayman Islands Limited (incorporated by reference to Exhibit 4.51 to our Annual Report on Form 20-F (File No. 001-33853) filed
with the Securities and Exchange Commission on April 22, 2016)
Restated Exclusive Technical Consulting and Services Agreement dated March 23, 2016 between Beijing Qu Na Information Technology
Co., Ltd. and Beijing Qunar Software Technology Co., Ltd. (incorporated by reference to Exhibit 4.52 to our Annual Report on Form 20-F
(File No. 001-33853) filed with the Securities and Exchange Commission on April 22, 2016)
Loan Agreement dated March 23, 2016 among Beijing Qunar Software Technology Co., Ltd., Hui Cao and Hui Wang (incorporated by
reference to Exhibit 4.53 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on
April 22, 2016)
Equity Option Agreement dated March 23, 2016 among Qunar Cayman Islands Limited, Beijing Qunar Software Technology Co., Ltd.,
Hui Cao, Hui Wang and Beijing Qu Na Information Technology Co., Ltd. (incorporated by reference to Exhibit 4.54 to our Annual Report
on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 22, 2016)
Equity Interest Pledge Agreement dated March 23, 2016 among Beijing Qunar Software Technology Co., Ltd., Hui Cao and Hui Wang
(incorporated by reference to Exhibit 4.55 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and
Exchange Commission on April 22, 2016)
Power of Attorney by Hui Cao and Hui Wang dated March 23, 2016 (incorporated by reference to Exhibit 4.56 to our Annual Report on
Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 22, 2016)
Indenture dated September 12, 2016 constituting US$975 million 1.25% convertible senior notes due 2022 (incorporated by reference to
Exhibit 4.47 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 13,
2017)
English summary of €980 Million Term Loan Agreement dated June 8, 2017 among the Registrant (as borrower), Bank of China (as sole
mandated lead arranger), Industrial and Commercial Bank of China, Shanghai Branch and Shanghai Pudong Development Bank, Shanghai
Branch (as joint lead arrangers), Bank of China, Shanghai Branch (as agent), Bank of China, Shanghai Changning Sub-branch (as
guarantee agent), and certain lenders (incorporated by reference to Exhibit 4.51 to our Annual Report on Form 20-F (File No. 001-33853)
filed with the Securities and Exchange Commission on April 23, 2018)
Facility Agreement dated July 5, 2019 among the Registrant (as borrower), Bank of Communications Co., Ltd. Hong Kong Branch, The
Bank of East Asia, Limited, China Construction Bank (Asia) Corporation Limited, The HongKong and Shanghai Banking Corporation
Limited, The Korea Development Bank, Bank of China Limited (as mandated lead arrangers and bookrunners), and other parties thereto
(incorporated by reference to Exhibit 4.32 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and
Exchange Commission on April 9, 2020)
115
Table of Contents
Exhibit
Number
4.30
4.31
4.32
4.33
4.34*
4.35*
8.1*
11.1
12.1*
12.2*
13.1**
13.2**
15.1*
15.2*
15.3*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104
Document
Registration Rights Agreement dated August 30, 2019 between the Registrant and MIH Internet SEA Private Limited (incorporated by
reference to Exhibit 99.2 to Schedule 13D (File No. 005-79455) filed by MIH Internet SEA Private Limited and Naspers Limited with
the Securities and Exchange Commission on September 5, 2019)
Cooperation Agreement dated August 30, 2019 among the Registrant, MIH Internet SEA Private Limited and Myriad International
Holdings B.V. (incorporated by reference to Exhibit 99.3 to Schedule 13D (File No. 005-79455) filed by MIH Internet SEA Private
Limited and Naspers Limited with the Securities and Exchange Commission on September 5, 2019)
Second Amended and Restated Global Share Incentive Plan (incorporated by reference to Exhibit 4.35 to our Annual Report on
Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 9, 2020)
Facility Agreement dated April 3, 2020 among the Registrant (as borrower), Standard Chartered Bank (Hong Kong) Limited, Industrial
and Commercial Bank of China (Macau) Limited, and China Construction Bank (Asia) Corporation Limited (as original mandated lead
arrangers, bookrunners, and underwriters), and other parties thereto (incorporated by reference to Exhibit 4.36 to our Annual Report on
Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 9, 2020)
Indenture dated July 20, 2020 constituting US$500 million 1.50% Exchangeable Senior Notes due 2027
Supplemental Indenture dated December 15, 2020 constituting US$500 million 1.50% Exchangeable Senior Notes due 2027
List of Significant Consolidated Entities of the Registrant
Code of Business Conduct and Ethics of the Registrant, as amended and restated as of October 31, 2017 (incorporated by reference to
Exhibit 11.1 to our Annual Report on Form 20-F (File No. 001-33853) filed with the Securities and Exchange Commission on April 23,
2018)
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of Maples and Calder (Hong Kong) LLP
Consent of Commerce & Finance Law Offices
Consent of PricewaterhouseCoopers Zhong Tian LLP
Inline XBRL Instance Document—this instance document does not appear on the Interactive Data File because its XBRL tags are not
embedded within the Inline XBRL document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
**
Filed with this annual report on Form 20-F.
Furnished with this annual report on Form 20-F.
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The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
TRIP.COM GROUP LIMITED
/s/ Jane Jie Sun
By:
Name: Jane Jie Sun
Title:
Chief Executive Officer and Director
Date: March 15, 2021
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TRIP.COM GROUP LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income and Comprehensive Income/(Loss) for the years ended December 31, 2018, 2019 and 2020
Consolidated Balance Sheets as of December 31, 2019 and 2020
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2018, 2019 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2019 and 2020
Notes to the Consolidated Financial Statements
F-1
Page
F-2
F-6
F-7
F-8
F-11
F-13
Table of Contents
To the Board of Directors and Shareholders of Trip.com Group Limited
Report of Independent Registered Public Accounting Firm
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Trip.com Group Limited and its subsidiaries (the “Company”) as of December 31,
2020 and December 31, 2019, and the related consolidated statements of income and comprehensive income/(loss), of shareholders’ equity and of cash
flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated
financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on certain
financial instruments in 2020 and the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal
Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements
and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether
effective internal control over financial reporting was maintained in all material respects.
F-2
Table of Contents
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does
not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of investments classified under Level 3 in the fair value hierarchy
As described in Note 8 to the consolidated financial statements, as of December 31, 2020 the Company had investments of RMB2,856 million classified
under Level 3 in the fair value hierarchy (the “Level 3 Investments”). The fair values of the Level 3 Investments were determined by management based
on an income approach utilizing various unobservable inputs which required significant judgment by management with respect to the assumptions and
estimates for the revenue growth rate, weighted average cost of capital, lack of marketability discounts, expected volatility and probability in equity
allocation.
F-3
Table of Contents
The principal considerations for our determination that performing procedures relating to the valuation of the Level 3 Investments is a critical audit
matter are (i) there was significant judgment by management with respect to the assumptions and estimates used in the determination of the fair values
of the Level 3 Investments, which in turn led to a high degree of auditor judgment, subjectivity, and effort in designing and applying procedures relating
to evaluating the reasonableness of management’s estimates and assumptions; and (ii) the audit effort involved the use of professionals with specialized
skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s determination of the fair
values of Level 3 investments, including controls over the development of the significant assumptions and estimates related to the fair value
measurements, including the revenue growth rate, weighted average cost of capital, lack of marketability discounts, expected volatility and probability
in equity allocation. These procedures also included, among others, reading the investment agreements, testing management’s process for developing the
fair value measurements of the Level 3 investments, evaluating the appropriateness of the income approach, testing the completeness, accuracy and
relevance of underlying data used in the model, and evaluating the significant assumptions and estimates used by management, including the revenue
growth rate, weighted average cost of capital, lack of marketability discounts, expected volatility and probability in equity allocation. Evaluating
management’s estimates and assumptions for the revenue growth rate involved considering the past performance of the investees’ businesses,
benchmarking of peer companies as well as economic and industry forecasts. Professionals with specialized skill and knowledge were used to assist in
evaluating the appropriateness of the Company’s valuation approach and the reasonableness of management’s assumptions for the weighted average cost
of capital, lack of marketability discounts, expected volatility and probability in equity allocation.
Valuation of Intangible Assets Acquired in Connection with Business Combinations
As described in Note 2 - Acquisitions to the consolidated financial statements, the Company recorded RMB396 million of intangible assets that were
acquired in connection with business combinations during the year ended December 31, 2020. The intangible assets were measured at fair value upon
acquisition primarily using valuation techniques under the income approach. The income approach utilized unobservable inputs which required
significant judgment by management with respect to the assumptions and estimates for the revenue growth rate and weighted average cost of capital.
The principal considerations for our determination that performing procedures relating to the valuation of intangible assets acquired in connection with
business combinations is a critical audit matter are (i) there was significant judgment by management with respect to the assumptions and estimates used
in the determination the fair values of these intangible assets, which in turn led to a high degree of auditor judgment, subjectivity, and effort in designing
and applying procedures relating to evaluating the reasonableness of management’s estimated and assumptions; and (ii) the audit effort involved the use
of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these
procedures.
F-4
Table of Contents
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to business combinations, including controls
over management’s identification of the intangible assets and controls over the development of the significant assumptions and estimates related to the
valuation of these intangible assets, including the revenue growth rate and weighted average cost of capital. These procedures also included, among
others, reading the share purchase agreements and testing the fair values of the intangible assets acquired in connection with business combinations as
determined by management, which included (i) evaluating the appropriateness of the valuation techniques under the income approach, (ii) testing the
completeness, accuracy and relevance of the underlying data used in the model, and (iii) evaluating the significant assumptions and estimates used by
management, including the revenue growth rate and weighted average cost of capital. Evaluating management’s assumptions and estimates for the
revenue growth rate involved considering the past performance of the acquired businesses as well as economic and industry forecasts. Professionals with
specialized skill and knowledge were used to assist in evaluating the appropriateness of the Company’s valuation approach and the reasonableness of
management’s assumptions for the weighted average cost of capital.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
March 15, 2021
We have served as the Company’s auditor since 2003.
F-5
Table of Contents
TRIP.COM GROUP LIMITED
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(In millions, except for share and per share data)
Revenues:
Accommodation reservation
Transportation ticketing
Packaged tours
Corporate travel
Others
Total revenues
Less: Sales tax and surcharges
Net revenues
Cost of revenues
Gross profit
Operating expenses:
Product development
Sales and marketing
General and administrative
Total operating expenses
Income/(loss) from operations
Interest income
Interest expense
Other (expense)/income
Income/(loss) before income tax expense and equity in loss of affiliates
Income tax expense
Equity in loss of affiliates
Net Income/(loss)
Net loss attributable to non-controlling interests
Accretion to redemption value of redeemable non-controlling interests
Net Income/(loss) attributable to Trip.com Group Limited
Net Income/(loss)
Other comprehensive (loss)/income:
Foreign currency translation
Unrealized securities holding (losses)/gains, net of tax
Total comprehensive (loss)/income
Comprehensive loss attributable to non-controlling interests
Comprehensive (loss)/income attributable to Trip.com Group Limited
Earnings/(losses) per ordinary share
— Basic
— Diluted
Earnings/(losses) per ADS
— Basic
— Diluted
Weighted average ordinary shares outstanding
— Basic shares
— Diluted shares
Share-based compensation included in Operating expense above is as follows:
Product development
Sales and marketing
General and administrative
2018
RMB
2019
RMB
2020
RMB
2020
US$
11,580
12,947
3,772
981
1,824
31,104
(139)
30,965
(6,324)
24,641
(9,620)
(9,596)
(2,820)
(22,036)
2,605
1,899
(1,508)
(1,075)
1,921
(793)
(32)
1,096
16
—
1,112
1,096
(1,072)
(696)
(672)
16
(656)
13,514
13,952
4,534
1,255
2,461
35,716
(50)
35,666
(7,372)
28,294
(10,670)
(9,295)
(3,289)
(23,254)
5,040
2,094
(1,677)
3,630
9,087
(1,742)
(347)
6,998
57
(44)
7,011
6,998
(289)
266
6,975
13
6,988
7,132
7,146
1,241
877
1,931
18,327
(11)
18,316
(4,031)
14,285
(7,667)
(4,405)
(3,636)
(15,708)
(1,423)
2,187
(1,716)
(273)
(1,225)
(355)
(1,689)
(3,269)
62
(40)
(3,247)
(3,269)
75
(178)
(3,372)
22
(3,350)
16.25
15.67
98.78
92.02
(43.21)
(43.21)
2.03
1.96
12.35
11.50
(5.40)
(5.40)
1,093
1,095
190
135
296
2,809
(2)
2,807
(618)
2,189
(1,175)
(675)
(557)
(2,407)
(218)
335
(263)
(42)
(188)
(54)
(259)
(501)
10
(6)
(497)
(501)
11
(27)
(517)
4
(513)
(6.62)
(6.62)
(0.83)
(0.83)
68,403,426 70,983,996 75,111,026 75,111,026
70,924,623 80,244,014 75,111,026 75,111,026
934
156
617
919
144
651
964
159
750
148
24
115
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
ASSETS
Current assets:
TRIP.COM GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2020
(In millions, except for share and per share data)
2019
RMB
2020
RMB
2020
US$
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net (Allowance for credit losses of RMB186 million and RMB559 million, respectively)
Due from related parties (Allowance for credit losses of nil and RMB72 million, respectively)
Prepayments and other current assets (Allowance for credit losses of RMB70 million and RMB168 million,
respectively)
Total current assets
Long-term deposits and prepayments
Long-term receivables due from related parties
Land use rights
Property, equipment and software
Investments
Goodwill
Intangible assets
Right-of-use assets
Deferred tax assets
Other long-term assets
Total assets
LIABILITIES
Current liabilities:
Short-term debt and current portion of long-term debt
Accounts payable
Due to related parties
Salary and welfare payable
Taxes payable
Advances from customers
Accrued liability for rewards program
Other payables and accruals
Total current liabilities
Deferred tax liabilities
Long-term debt
Long-term lease liability
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 20)
MEZZANINE EQUITY
Redeemable non-controlling interests
SHAREHOLDERS’ EQUITY
Share capital (US$0.01 par value; 175,000,000 shares authorized)
Additional paid-in capital
Statutory reserves
Accumulated other comprehensive loss
Retained earnings
Less: Treasury stock
Total Trip.com Group Limited shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities, mezzanine equity and shareholders’ equity
1,824
1,319
19,923 18,096 2,773
202
23,058 24,820 3,804
631
276
4,119
1,802
7,661
2,779
1,000
25
91
6,135
411
25
88
5,780
12,710
7,855 1,204
67,955 58,011 8,890
63
4
14
886
51,278 47,943 7,348
58,308 59,353 9,096
13,173 13,256 2,032
151
987
1,207
214
1,395
976
21 — —
200,169 187,249 28,698
30,516 33,665 5,159
691
12,294
4,506
37
400
241
542
4,829
3,534
186
1,449
1,217
7,605 1,166
11,675
478
73
7,123 1,091
7,541
69,182 58,369 8,945
548
19,537 22,718 3,482
95
62
93,324 85,682 13,132
618
403
749
264
3,574
3,592
478
1,142 — —
6
6
635
(1,505)
637
(1,608)
1
83,614 83,960 12,867
98
(247)
22,803 19,470 2,984
(323)
103,442 100,354 15,380
186
105,703 101,567 15,566
200,169 187,249 28,698
(2,111)
(2,111)
1,213
2,261
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
TRIP.COM GROUP LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(In millions, except for share and per share data)
Ordinary shares
(US$0.01 par value)
Number of
shares
outstanding
Additional
paid-in
capital
Par
value
RMB RMB
Statutory
reserves
RMB
Accumulated
other
comprehensive
income/(loss)
RMB
Retained
earnings
RMB
Number of
Treasury
stock
Treasury
stock
RMB
Total
Trip.com
Group
Limited
shareholders’
equity
RMB
Non-
controlling
interests
RMB
Total
shareholders’
equity
RMB
Balance as of
December 31, 2017
67,600,654
5 71,341
384
6,379 8,838 (2,929,137) (2,111)
84,836
1,779
86,615
Cumulative effect of
adoption of new
accounting standard
Issuance of ordinary
shares for the
exercise of stock
options
Share-based
compensation
Appropriations to
statutory reserves
Foreign currency
translation
adjustments
Unrealized securities
holding losses
Early Termination of
Convertible Notes
Net income / (loss)
Issuance of additional
equity stake by
subsidiaries
Disposal of shares in
subsidiaries
Acquisition of
additional shares in
subsidiaries
Non-controlling interest
in subsidiary disposed
of in Business
Combination
Business combination
Balance as of
— — — —
(6,093) 6,093
— —
—
—
—
1,522,154 —
653 —
— —
— —
653
—
653
— —
1,707 —
— —
— —
1,707
—
1,707
— — —
100
—
(100)
— —
—
—
—
— — — —
(1,072) —
— —
(1,072)
—
(1,072)
— — — —
(696) —
— —
(696)
—
(696)
16 — — —
— — — —
— —
— 1,112
16 —
— —
—
1,112
—
(16)
—
1,096
— — — —
— —
— —
—
394
394
— —
4 —
— —
— —
4
(34)
(30)
— —
(224) —
— —
— —
(224)
(378)
(602)
395 —
— —
— — — —
— —
— —
— —
— —
395
—
4
269
399
269
December 31, 2018
69,122,824
5 73,876
484
(1,482) 15,943 (2,929,121) (2,111)
86,715
2,018
88,733
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
Issuance of ordinary
shares for the
exercise of stock
options
Share-based
compensation
Appropriations to
TRIP.COM GROUP LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(In millions, except for share and per share data)
Ordinary shares
(US$0.01 par value)
Number of
shares
outstanding
Par
value
Additional
paid-in
capital
RMB RMB
Statutory
reserves
RMB
Accumulated
other
comprehensive
income/(loss)
RMB
Retained
earnings
RMB
Number of
Treasury
stock
Treasury
stock
RMB
Total
Trip.com
Group
Limited
shareholders’
equity
RMB
Non-
controlling
interests
RMB
Total
shareholders’
equity
RMB
854,749 —
467 —
— —
— —
467
—
467
— —
1,680 —
— —
— —
1,680
34
1,714
statutory reserves
— — —
151
—
(151)
— —
—
—
—
Foreign currency
translation
adjustments
Unrealized securities
holding gains
Accretion of
redeemable
non-controlling
interests
Net income / (loss)
Deconsolidation of
shares in
subsidiaries
Issuance of
additional equity
stake by
subsidiaries
Disposal of shares in
subsidiaries
Equity transaction in
which a
non-controlling
interest in a
subsidiary is
exchanged for a
non-controlling
interest in another
subsidiary
Business
combination
Share issuance for
the investments
Balance as of
December 31,
2019
— — — —
(289) —
— —
(289)
—
(289)
— — — —
266 —
— —
266
—
266
— — — —
— — — —
—
(44)
— 7,055
— —
— —
(44)
7,055
—
(57)
(44)
6,998
— — — —
— —
— —
—
(45)
(45)
— — — —
— —
— —
—
19
— —
2 —
— —
— —
2
—
— —
(25) —
— —
— —
(25)
25
— — — —
— —
— —
—
267
19
2
—
267
4,108,831
1
7,614 —
— —
— —
7,615
—
7,615
74,086,404
6 83,614
635
(1,505) 22,803 (2,929,121) (2,111)
103,442
2,261
105,703
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Table of Contents
Cumulative effect of
adoption of new
accounting standard
(Note 2)
Issuance of ordinary
shares for the
exercise of stock
options
Share-based
compensation
Appropriations to
statutory reserves
Foreign currency
translation
adjustments
Unrealized securities
holding gains
Accretion of
redeemable
non-controlling
interests
Net income / (loss)
Deconsolidation of
TRIP.COM GROUP LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(In millions, except for share and per share data)
Ordinary shares
(US$0.01 par value)
Number of
shares
outstanding
Par
value
Additional
paid-in
capital
RMB RMB
Statutory
reserves
RMB
Accumulated
other
comprehensive
income/(loss)
RMB
Retained
earnings
RMB
Number of
Treasury
stock
Treasury
stock
RMB
Total
Trip.com
Group
Limited
shareholders’
equity
RMB
Non-
controlling
interests
RMB
Total
shareholders’
equity
RMB
— — — —
—
(83)
— —
(83)
—
(83)
866,988 —
159 —
— —
— —
159
—
159
— —
1,873 —
— —
— —
1,873
—
1,873
— — —
3
—
(3)
— —
—
—
—
— — — —
75 —
— —
75
—
75
— — — —
(178) —
— —
(178)
—
(178)
— — — —
— — — —
—
(40)
— (3,207)
— —
— —
(40)
(3,207)
—
(62)
(40)
(3,269)
shares in subsidiaries
— — — —
— —
— —
—
176
176
Issuance of additional
equity stake by
subsidiaries
Disposal of shares in
subsidiaries
Equity transaction in
which a
non-controlling
interest in a
subsidiary is
exchanged for a
non-controlling
interest in another
subsidiary
Acquisition of
additional shares in
subsidiaries
Balance as of
— — — —
— —
— —
—
5
5
— — —
(1)
— —
— —
(1)
(233)
(234)
— —
9 —
— —
— —
9
(9)
—
— —
(1,695) —
— —
— —
(1,695)
(925)
(2,620)
December 31, 2020 74,953,392
6 83,960
637
(1,608) 19,470 (2,929,121) (2,111)
100,354
1,213
101,567
The accompanying notes are an integral part of these consolidated financial statements.
F-10
Table of Contents
TRIP.COM GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(In millions)
Cash flows from operating activities:
Net income/(loss)
Adjustments to reconcile net income/(loss) to cash provided by operating activities:
Share-based compensation
Equity in loss of affiliates
Loss from disposal of property, equipment and software
Gain on deconsolidation of subsidiaries
(Gain)/loss from disposal of long-term investment
Loss/(gain) from disposal of a subsidiary
Impairments of long-term investments
Provision/(settlement) of provision and contingent liability balances related to an equity method
2018
RMB
2019
RMB
2020
RMB
2020
US$
1,096 6,998 (3,269)
(501)
1,707 1,714 1,873
347 1,689
100
28
(161) (1,091)
602
(318)
(36)
11
905
205
32
41
—
(1,181)
2
—
287
259
15
(167)
92
(6)
139
investment
61
Changes in fair value for equity securities investment and exchangeable senior notes
Gain from the re-measurement of the previously held equity interest to the fair value in the business
acquisition
Gain from foreign currency forwards
Allowance for credit losses
Depreciation of property, equipment and software
Amortization of intangible assets and land use rights
Amortization of right of use assets
Deferred income tax benefits
Changes in current assets and liabilities, net of assets acquired and liabilities assumed/disposed of in
business combinations/dispositions, net of deconsolidations:
(Increase)/decrease in accounts receivable
(Increase)/decrease in due from related parties
(Increase)/decrease in prepayments and other current assets
(Increase)/decrease in long-term receivables
Increase/(decrease) in accounts payable
Increase/(decrease) in due to related parties
Increase/(decrease) in salary and welfare payable
Increase/(decrease) in taxes payable
Increase/(decrease) in advances from customers
Decrease in accrued liability for rewards program
Increase/(decrease) in other payables and accruals
Net cash provided by/(used in) operating activities
Cash flows from investing activities:
Purchase of property, equipment and software
Cash paid for long-term investments
Cash received from/(paid for) business combinations, net of cash acquired
Purchase of intangible assets
(Increase)/decrease in short-term investments
Cash received from loans to the users
Cash paid for loans to the users
Net change in loans to the users with terms of less than three months
Cash received from disposal of long-term investments
Cash disposed from deconsolidation of subsidiaries
Cash (disposed)/received from disposal of subsidiaries
Net cash used in investing activities
F-11
3,064 (2,334)
(603) — —
94
612
(249)
—
69
546
436
—
(632)
(196) — —
(7)
(105)
107
191
121
656
65
440
53
354
(75)
(176)
(47)
700
790
427
349
(493)
(704) (2,041) 3,189
(1,280) (1,054)
821
(2,039) (2,245) 3,838
60
489
126
588
(41)
146
9
540 (7,762) (1,190)
3,687
(24)
(159)
73
62
(202)
220 1,143 (1,318)
(37)
(242)
407
42
(624)
1,333 2,211 (4,073)
(50) — —
(199)
(588)
(82)
914 1,163 (1,288)
7,115 7,333 (3,823)
(673)
(532)
1
(35)
(81)
(823)
(4,387) (15,834) (9,770) (1,497)
(147)
(212)
(958)
(11) — —
(8,811) 15,011 6,909 1,059
612
1,022 2,553 3,992
(604)
(998) (2,748) (3,944)
14
91
(918) (1,084)
109
708
719
723
(48)
(313)
(3)
—
(1)
(4)
19
(2)
(584)
(14,078) (2,413) (3,821)
Table of Contents
TRIP.COM GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 AND 2020
(In millions)
2018
RMB
2019
RMB
2020
RMB
2020
US$
Cash flows from financing activities:
Proceeds from/(repayment of) short-term bank loans, net
Proceeds from long-term bank loans
Repayment of long-term loans, including current portion
Proceeds from exercise of share options
Cash paid for acquisition of additional equity stake in subsidiaries
Cash paid for settlement of convertible notes
Proceeds from securitization debt
Cash paid for settlement of securitization debt
Cash received from non-controlling shareholders
Proceeds from issuance of exchangeable senior notes
Net cash provided by/(used in) financing activities
Effect of foreign exchange rate changes on cash and cash equivalents, restricted cash
Net increase/(decrease) in cash and cash equivalents, restricted cash
Cash and cash equivalents, restricted cash, beginning of year
Cash and cash equivalents, restricted cash, end of year*
Supplemental disclosure of cash flow information
Cash paid during the year for income taxes
Cash paid for interest, net of amounts capitalized
Supplemental schedule of non-cash investing and financing activities
Non-cash consideration paid for business acquisitions, investments and non-controlling interest
Share issuance as the consideration for equity investment
Accruals related to purchase of property, equipment and software
Unpaid cash consideration for business acquisitions and acquisition of additional shares of subsidiary
—
11,768 (3,079) 4,020
616
2,973 5,146 14,189 2,175
(550)
— (3,147) (3,589)
677
467
24
159
(320)
(1,196)
(220) (2,089)
(3,297) (10,048) (9,522) (1,459)
22
147
(106)
(690)
1
5
520
— — 3,395
923
11,926 (9,256) 6,025
(109)
(713)
5,782 (4,027) (2,332)
(358)
19,992 25,774 21,747 3,333
25,774 21,747 19,415 2,975
608 1,074
(608)
393 1,159
819
309
1,315 1,496 1,239
1,444 1,637 1,642
190
252
(942)
(8)
(400)
— (7,615) — —
(19)
(22)
(144)
(7)
(188) —
(126)
(43)
(50)
*
As of December 31, 2018, cash and cash equivalents and restricted cash are RMB21.5 billion and RMB4.2 billion respectively.
The accompanying notes are an integral part of these consolidated financial statements.
F-12
Table of Contents
TRIP.COM GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in RENMINBI (“RMB”) unless otherwise stated)
1.
ORGANIZATION AND NATURE OF OPERATIONS
The accompanying consolidated financial statements include the financial statements of Trip.com Group Limited (the “Company”, formerly
known as Ctrip.com International, Ltd.), its subsidiaries, variable interest entities (the “VIEs”) and VIEs’ subsidiaries. In these consolidated financial
statements, where appropriate, the term “Company” also refers to its subsidiaries, VIEs and VIEs’ subsidiaries as a whole.
The Company is principally engaged in the provision of travel related services including accommodation reservation, transportation ticketing,
packaged tours, corporate travel management services, as well as, to a much lesser extent, Internet-related advertising and other related services.
2.
PRINCIPAL ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”).
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues
and expenses during the reporting periods. Actual results could materially differ from those estimates.
Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs and VIEs’ subsidiaries. All
significant transactions and balances between the Company, its subsidiaries, VIEs and VIEs’ subsidiaries have been eliminated upon consolidation.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to appoint or
remove the majority of the members of the board of directors; to cast a majority of votes at the meeting of the board of directors or to govern the
financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
The Company applies the guidance codified in Accounting Standard Codification 810, Consolidations (“ASC 810”) on accounting for VIEs and
their respective subsidiaries, which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity in which it has a
controlling financial interest. A VIE is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient
to permit the entity to finance its activities without additional financial support; (b) as a group, the holders of the equity investment at risk lack the
ability to make certain decisions, the obligation to absorb expected losses or the right to receive expected residual returns, or (c) an equity investor has
voting rights that are disproportionate to its economic interest and substantially all of the entity’s activities are on behalf of the investor. The
accompanying consolidated financial statements include the financial statements of the Company, its subsidiaries, consolidated VIEs and VIEs’
subsidiaries:
The following is a summary of the Company’s major VIEs and VIEs’ subsidiaries:
Name of VIE and VIEs’ subsidiaries
Date of establishment/acquisition
Shanghai Ctrip Commerce Co., Ltd. (“Shanghai Ctrip Commerce”)
Shanghai Huacheng Southwest International Travel Agency Co., Ltd. (“Shanghai Huacheng”,
formerly known as Shanghai Huacheng Southwest Travel Agency Co., Ltd.)
Established on July 18, 2000
Established on March 13, 2001
Chengdu Ctrip Travel Agency Co., Ltd. (“Chengdu Ctrip”)
Established on January 8, 2007
Beijing Qu Na Information Technology Company Limited (“Qunar Beijing”)
Established on March 17, 2006
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The Company is considered the primary beneficiary of a VIE or VIEs’ subsidiary and consolidated the VIE or VIEs’ subsidiary if the Company
had variable interests, that will absorb the entity’s expected losses, receive the entity’s expected residual returns, or both.
Major variable interest entities and their subsidiaries
The Company conducts a part of its operations through a series of agreements with certain VIEs and VIEs’ subsidiaries as stated in above. These
VIEs and VIEs’ subsidiaries are used solely to facilitate the Company’s participation in Internet content provision, advertising business, travel agency
and air-ticketing services in the People’s Republic of China (“PRC”) where foreign ownership is restricted. From 2015, the Company restructured its
business lines to change some of its VIEs to its wholly owned subsidiaries, which carry out the businesses that are not foreign ownerships restricted.
Shanghai Ctrip Commerce is a domestic company incorporated in Shanghai, the PRC. Shanghai Ctrip Commerce holds a telecommunications
operation license and is primarily engaged in the provision of advertising business on the Internet website. Two senior officers of the Company
collectively hold 100% of the equity interest in Shanghai Ctrip Commerce. The registered capital of Shanghai Ctrip Commerce was RMB900,000,000
as of December 31, 2020.
Shanghai Huacheng is a domestic company incorporated in Shanghai, the PRC. Shanghai Huacheng holds a travel agency operation license and
mainly provides domestic, inbound and outbound tour services and air-ticketing services. Shanghai Ctrip Commerce holds 100% of the equity interest in
Shanghai Huacheng. The registered capital of Shanghai Huacheng was RMB100,000,000 as of December 31, 2020.
Chengdu Ctrip is a domestic company incorporated in Chengdu, the PRC. Chengdu Ctrip holds a domestic travel agency license and is engaged in
the provision of air-ticketing service. Two senior officers of the Company hold 100% of the equity interest in Chengdu Ctrip. The registered capital of
Chengdu Ctrip was RMB500,000,000 as of December 31, 2020.
Qunar Beijing is a domestic company incorporated in Beijing, the PRC. Qunar Beijing holds various licenses for domestic and cross-border
business of Qunar. Two senior officers of the Company hold 100% of the equity interest in Qunar Beijing. The registered capital of Qunar Beijing was
RMB11,000,000 as of December 31, 2020.
The capital injected by senior officers or senior officer’s family member are funded by the Company and are recorded as long-term business loans
to related parties. The Company does not have any ownership interest in these VIEs and VIEs’ subsidiaries.
As of December 31, 2020, the Company has various agreements with its consolidated VIEs and VIEs’ subsidiaries, including loan agreements,
exclusive technical consulting and services agreements, share pledge agreements, exclusive option agreements and other operating agreements.
Details of certain key agreements with the VIEs are as follows:
Powers of Attorney: Each of the shareholders of the Company’s consolidated affiliated Chinese entities, except for Hui Cao and Hui Wang, signed
an irrevocable power of attorney to appoint Ctrip Travel Network or Ctrip Travel Information, as attorney-in-fact to vote, by itself or any other person to
be designated at its discretion, on all matters of the applicable consolidated affiliated Chinese entities. Each such power of attorney will remain effective
as long as the applicable consolidated affiliated Chinese entity exists, and such shareholders of the applicable consolidated affiliated Chinese entities are
not entitled to terminate or amend the terms of the power of attorneys without prior written consent from us.
As of the date of this annual report, each of the shareholders of Qunar Beijing, Hui Cao and Hui Wang, also signed an irrevocable power of
attorney authorizing an appointee, to exercise, in a manner approved by Qunar, on such shareholder’s behalf the full shareholder rights pursuant to
applicable laws and Qunar Beijing’s articles of association, including without limitation full voting rights and the right to sell or transfer any or all of
such shareholder’s equity interest in Qunar Beijing. Each such power of attorney is effective until such time as such relevant shareholder ceases to hold
any equity interest in Qunar Beijing. The terms of the power of attorney with respect to Qunar Beijing are otherwise substantially similar to the terms
described in the foregoing paragraph.
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Technical Consulting and Services Agreements: Ctrip Travel Information and Ctrip Travel Network, each a wholly owned PRC subsidiary of the
Company, provide the Company’s consolidated affiliated Chinese entities, except for Qunar Beijing, with technical consulting and related services and
staff training and information services on an exclusive basis. The Company also maintain its network platforms. In consideration for the Company’s
services, the Company’s consolidated affiliated Chinese entities agree to pay the Company service fees as calculated in such manner as determined by
the Company from time to time based on the nature of service, which may be adjusted periodically. Although the service fees are typically determined
based on the number of transportation tickets sold, given the fact that the nominee shareholders of such consolidated affiliated Chinese entities have
irrevocably appointed the employees of the Company’s subsidiaries to vote on their behalf on all matters they are entitled to vote on, the Company has
the right to determine the level of service fees paid and therefore receive substantially all of the economic benefits of the Company’s consolidated
affiliated Chinese entities in the form of service fees. Ctrip Travel Information or Ctrip Travel Network, as appropriate, will exclusively own any
intellectual property rights arising from the performance of this agreement. The initial term of these agreements is 10 years and may be renewed
automatically in 10-year terms unless the Company disapprove the extension. The Company retains the exclusive right to terminate the agreements at
any time by delivering a 30-day advance written notice to the applicable consolidated affiliate Chinese entity.
As of the date of this annual report, pursuant to the restated exclusive technical consulting and services agreement between Qunar Beijing and
Qunar Software, Qunar Software provides Qunar Beijing with technical, marketing and management consulting services on an exclusive basis in
exchange for service fee paid by Qunar Beijing based on a set formula defined in the agreement subject to adjustment by Qunar Software at its sole
discretion. This agreement will remain in effect until terminated unilaterally by Qunar Software or mutually. The terms of this agreement are otherwise
substantially similar to the terms described in the foregoing paragraph.
Share Pledge Agreements: The shareholders of the Company’s consolidated affiliated Chinese entities, except for Hui Cao and Hui Wang, have
pledged their respective equity interests in the applicable consolidated affiliated Chinese entities as a guarantee for the performance of all the obligations
under the other contractual arrangements, including payment by such consolidated affiliated Chinese entities of the technical and consulting services
fees to us under the technical consulting and services agreements, repayment of the business loan under the loan agreements and performance of
obligations under the exclusive option agreements, each agreement as described herein. In the event any of such consolidated affiliated Chinese entity
breaches any of its obligations or any shareholder of such consolidated affiliated Chinese entities breaches his or her obligations, as the case may be,
under these agreements, the Company is entitled to enforce the equity pledge right and sell or otherwise dispose of the pledged equity interests after the
pledge is registered with the relevant local branch of SAMR, and retain the proceeds from such sale or require any of them to transfer his or her equity
interest without consideration to the PRC citizen(s) designated by us. These share pledge agreements are effective until two years after the pledgor and
the applicable consolidated affiliated Chinese entities no longer undertake any obligations under the above-referenced agreements.
As of the date of this annual report, pursuant to the equity interest pledge agreement among Qunar Software, Hui Cao and Hui Wang, Hui Cao and
Hui Wang have pledged their equity interests in Qunar Beijing along with all rights, titles and interests to Qunar Software as guarantee for the
performance of all obligations under the relevant contractual arrangements mentioned herein. After the pledge is registered with the relevant local
branch of SAMR, Qunar Software may enforce this pledge upon the occurrence of a settlement event or as required by the PRC law. The pledge, along
with this agreement, will be effective upon registration with the local branch of the SAMR, and will expire when all obligations under the relevant
contractual arrangements have been satisfied or when each of Hui Cao and Hui Wang completes a transfer of equity interest and ceases to hold any
equity interest in Qunar Beijing. In enforcing the pledge, Qunar Software is entitled to dispose of the pledge and have priority in receiving payment from
proceeds from the auction or sale of all or part of the pledge until the obligations are settled. The terms of this agreement are otherwise substantially
similar to the terms described in the foregoing paragraph.
Loan Agreements: Under the loan agreements the Company entered into with the shareholders of the Company’s consolidated affiliated Chinese
entities, except for Hui Cao and Hui Wang, the Company extended long-term business loans to these shareholders of the Company’s consolidated
affiliated Chinese entities with the sole purpose of providing funds necessary for the capitalization or acquisition of such consolidated affiliated Chinese
entities. These business loan amounts were injected into the applicable consolidated affiliated Chinese entities as capital and cannot be accessed for any
personal uses. The loan agreements shall remain effective until the parties have fully performed their respective obligations under the agreement, and the
shareholders of such consolidated affiliated Chinese entities have no right to unilaterally terminate these agreements. In the event that the PRC
government lifts its substantial restrictions on foreign ownership of the travel agency, or value-added telecommunications business in China, as
applicable, the Company will exercise its exclusive option to purchase all of the outstanding equity interests of the Company’s consolidated affiliated
Chinese entities, as described in the following paragraph, and the loan agreements will be canceled in connection with such purchase. However, it is
uncertain when, if at all, the PRC government will lift any or all of these restrictions.
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As of the date of this annual report, pursuant to the loan agreement among Qunar Software, Hui Cao and Hui Wang, the loans extended by Qunar
Software to each of Hui Cao and Hui Wang are only repayable by a transfer of such borrower’s equity interest in Qunar Beijing to Qunar Software or its
designated party, in proportion to the amount of the loan to be repaid. This loan agreement will continue in effect indefinitely until such time when
(i) the borrowers receive a repayment notice from Qunar Software and fully repay the loans, or (ii) an event of default (as defined therein) occurs unless
Qunar Software sends a notice indicating otherwise within 15 calendar days after it is aware of such event. The terms of this loan agreement
are otherwise substantially similar to the terms described in the foregoing paragraphs.
Exclusive Option Agreements: As consideration for the Company’s entering into the loan agreements described above, each of the shareholders
of the Company’s consolidated affiliated Chinese entities, except for Hui Cao and Hui Wang, has granted us an exclusive, irrevocable option to
purchase, or designate one or more person(s) at the Company’s discretion to purchase, all of its equity interests in the applicable consolidated affiliated
Chinese entities at any time the Company desires, subject to compliance with the applicable PRC laws and regulations. The Company may exercise the
option by issuing a written notice to the shareholder of relevant consolidated affiliated Chinese entity. The purchase price shall be equal to the
contribution actually made by the shareholder for the relevant equity interest. Therefore, if the Company exercises these options, the Company may
choose to cancel the outstanding loans the Company extended to the shareholders of such consolidated affiliated Chinese entities pursuant to the loan
agreements as the loans were used solely for equity contribution purposes. The initial term of these agreements is 10 years and may be renewed
automatically in 10-year terms unless the Company disapproves the extension. The Company retains the exclusive right to terminate the agreements at
any time by delivering a written notice to the shareholder of applicable consolidated affiliate Chinese entity.
Hui Cao and Hui Wang also entered into an equity option agreement with Qunar, Qunar Software and Qunar Beijing. This equity option
agreement contains arrangements that are similar to that as described in the foregoing paragraph. This agreement will remain effective with respect to
each of Qunar Beijing’s shareholders until all of the equity interest has been transferred or Qunar and Qunar Software terminates the agreement
unilaterally with 30 days’ prior written notice.
The Company’s consolidated affiliated Chinese entities and their shareholders agree not to enter into any transaction that would affect the assets,
obligations, rights or operations of the Company’s consolidated affiliated Chinese entities without the Company’s prior written consent. They also agree
to accept the Company’s guidance with respect to day-to-day operations, financial management systems and the appointment and dismissal of key
employees.
Risks in relation to contractual arrangements between the Company’s PRC subsidiaries and its affiliated Chinese entities:
The Company has been advised by Commerce & Finance Law Offices, its PRC legal counsel, that its contractual arrangements with its
consolidated VIEs as described in the Company’s annual report are valid, binding and enforceable under the current laws and regulations of China.
Based on such legal opinion and the management’s knowledge and experience, the Company believes that its contractual arrangements with its
consolidated VIEs are in compliance with current PRC laws and legally enforceable. However, there may be in the event that the affiliated Chinese
entities and their respective shareholders fail to perform their contractual obligations, the Company may have to rely on the PRC legal system to enforce
its rights. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since
1979, PRC legislation and regulations have significantly enhanced the foreign investments in China. However, since the PRC legal system is still
evolving, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve
uncertainties, which may limit remedies available to us. In addition, any litigation in China may be protracted and result in substantial costs and
diversion of resources and management attention. Due to the uncertainties with respect to the PRC legal system, the PRC government authorities may
ultimately take a view contrary to the opinion of its PRC legal counsel with respect to the enforceability of the contractual arrangements.
There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations.
Accordingly, the Company cannot be assured that the PRC government authorities will not ultimately take a view that is contrary to the Company’s
belief and the opinion of its PRC legal counsel. In March 2019, the draft Foreign Investment Law was submitted to the National People’s Congress for
review and was approved on March 15, 2019, which came into effect from January 1, 2020. The new Foreign Investment Law of the PRC repealed
simultaneously the Wholly Foreign-owned Enterprise Law of the PRC, Sino-foreign Equity Joint Venture Law of the PRC and Sino-foreign Cooperative
Joint Ventures Law of the PRC. Therefore, the general regulations for companies’ set up and operation in the PRC including the foreign-invested
companies shall comply with the Company Law of the PRC unless provided in the PRC Foreign Investment Laws. In December 2019, the Implementing
Regulation of the Foreign Investment Law has been promulgated by the State Council which has come into force as of January 1, 2020. The Foreign
Investment Law does not touch upon the relevant concepts and regulatory regimes that were historically suggested for the regulation of VIE structures,
and thus this regulatory topic remains unclear under the Foreign Investment Law. Since the Foreign Investment Law is new, there are substantial
uncertainties exist with respect to its implementation and interpretation and it is also possible that the VIE entities will be deemed as foreign invested
enterprises and be subject to restrictions in the future. Such restrictions may cause interruptions to the Company’s operations, products and services and
may incur additional compliance cost, which may in turn materially and adversely affect the Company’s business, financial condition and results of
operations.
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Summary financial information of the Company’s VIEs in the consolidated financial statements
Pursuant to the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs, and can have assets
transferred freely out of the VIEs without any restrictions. Therefore, the Company considers that there is no asset of a consolidated VIE that can be
used only to settle obligations of the VIE, except for registered capital and PRC statutory reserves of the VIEs amounting to a total of RMB2.0 billion as
of December 31, 2020. As all the consolidated VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs
do not have recourse to the general credit of the Company for any of the liabilities of the consolidated VIEs.
Summary financial information of the VIEs, which represents aggregated financial information of the VIEs and their respective subsidiaries
included in the accompanying consolidated financial statements, is as follows (RMB in millions):
Total assets
Less: Inter-company receivables
Total assets excluding inter-company receivables
Total liabilities
Less: Inter-company payables
Total liabilities excluding inter-company payables
As of December 31,
2019 2020
33,394 32,084
(8,235) (8,690)
25,159 23,394
29,594 28,560
(18,689) (18,555)
10,905 10,005
As of December 31, 2019 and 2020, the VIEs’ assets mainly consisted of cash and cash equivalents (December 31, 2019: RMB6.9 billion,
December 31, 2020: RMB7.0 billion), short-term investments (December 31, 2019: RMB4.0 billion, December 31, 2020: RMB2.5 billion), accounts
receivable (December 31, 2019: RMB4.3 billion, December 31, 2020: RMB2.7 billion), prepayments and other current assets (December 31, 2019:
RMB5.1 billion, December 31, 2020: RMB3.5 billion) and investments (non-current) (December 31, 2019: RMB3.7 billion, December 31, 2020:
RMB5.9 billion). The inter-company receivables of RMB8.2 billion and RMB8.7 billion as of December 31, 2019 and 2020 mainly represented the
receivables by VIEs from the Company’s wholly-owned subsidiaries for treasury cash management purpose.
As of December 31, 2019 and 2020, the VIEs’ liabilities mainly consisted of accounts payable (December 31, 2019: RMB3.7 billion,
December 31, 2020: RMB1.8 billion), other payables and accruals (December 31, 2019: RMB1.7 billion, December 31, 2020: RMB1.9 billion),
advances from customers (December 31, 2019: RMB3.2 billion, December 31, 2020: RMB1.7 billion) and short-term debt (December 31, 2019:
RMB365 million, December 31, 2020: RMB3.7 billion). The inter-company payables of RMB18.7 billion and RMB18.6 billion as of December 31,
2019 and 2020 mainly represented payables by VIEs to the Company’s wholly-owned subsidiaries for treasury cash management purpose and the
service fees payable to the WFOEs (Ctrip Travel Information, Ctrip Travel Network, and Qunar Software each a wholly owned PRC subsidiary of the
Company’s, “WFOEs”) under the technical consulting and services agreements, which are operational in nature from the VIEs and their subsidiaries’
perspectives and have been settled after each year end, respectively.
The following table set forth the summary of results of operations of the VIEs and their subsidiaries of the Company (RMB in millions):
Net revenues
Cost of revenues
Net income/(loss)
For the year ended December 31,
2018
2020
6,513
8,357
2,471
2,983
(254)
170
2019
9,572
3,627
89
As aforementioned, the VIEs mainly conduct transportation ticketing, advertising and financial service businesses. Net revenues from VIEs
accounted for around 36% of the Company’s net revenues for the year ended December 31, 2020.
The VIEs’ net income before the deduction of the inter-company service fee charges were RMB1.5 billion, RMB1.7 billion and RMB1.5 billion
for the years ended December 31, 2018, 2019 and 2020, respectively.
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The WFOEs are the sole and exclusive provider of technical consulting and related services and information services for the VIEs. Pursuant to the
Exclusive Technical Consulting and Service Agreements, the VIEs pay service fees to the WFOEs based on the VIEs’ actual operating results. The
WFOEs are entitled to receive substantially all of the net income and transfer a majority of the economic benefits in the form of service fees from the
VIEs and VIEs’ subsidiaries to the WFOEs.
The amount of service fees paid by all the VIEs as a percentage of the VIEs’ total net income were 89%, 95% and 117% for the years ended
December 31, 2018, 2019 and 2020, respectively.
The following tables set forth the summary of cash flow activities of the VIEs and their subsidiaries of the Company (RMB in millions):
Net cash provided by/ (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
For the year ended December 31,
2019
2020
(517)
—
—
(597)
—
—
2018
591
—
—
Currently there is no contractual arrangement that could require the Company to provide additional financial support to the consolidated VIEs. As
the Company is conducting certain business in the PRC mainly through the VIEs, the Company may provide such support on a discretionary basis in the
future, which could expose the Company to a loss.
Foreign currencies
The Company’s reporting currency is RMB. The Company’s functional currency is US$. The Company’s operations are conducted through the
subsidiaries and VIEs where the local currency is the functional currency and the financial statements of those subsidiaries are translated from their
respective functional currencies into RMB.
Transactions denominated in currencies other than functional currencies are remeasured at the exchange rates quoted by the People’s Bank of
China (the “PBOC”) and the Hong Kong Association of Banks (the “HKAB”), prevailing or averaged at the dates of the transaction for PRC and Hong
Kong subsidiaries respectively. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of
income/(loss) and comprehensive income/(loss). Monetary assets and liabilities denominated in foreign currencies are remeasured using the applicable
exchange rates quoted by the PBOC and HKAB at the balance sheet dates. All such exchange gains and losses are included in the consolidated
statements of income/(loss).
Assets and liabilities of the group companies are translated from their respective functional currencies to the reporting currency at the exchange
rates at the balance sheet dates, equity accounts are translated at historical exchange rates and revenues and expenses are translated at the average
exchange rates in effect during the reporting periods. The exchange differences for the translation of group companies with non-RMB functional
currency into the RMB are included in foreign currency translation adjustments, which is a separate component of shareholders’ equity on the
consolidated financial statements. The foreign currency translation adjustments are not subject to tax.
Translations of amounts from RMB into US$ are solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB6.525
on December 31, 2020, representing the certificated exchange rate published by the Federal Reserve Board. No representation is intended to imply that
the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2020, or at any other rate.
Cash and cash equivalents
Cash includes currency on hand and deposits held by financial institutions that can be added to or withdrawn without limitation. Cash equivalents
represent short-term, highly liquid investments that are readily convertible to known amounts of cash and with original maturities from the date of
purchase of generally three months or less.
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Restricted cash
Restricted cash represents cash that cannot be withdrawn without the permission of third parties. The Company’s restricted cash is substantially
cash balance on deposit required by its business partners and commercial banks.
Short-term investments
Short-term investments represent i) held-to-maturity investments which are due in one year and stated at amortized cost; ii) the investments issued
by commercial banks or other financial institutions with a variable interest rate indexed to the performance of underlying assets within one year, and iii)
foreign currency forward contracts which are short-term. These investments are stated at fair value. Changes in the fair value are reflected in the
consolidated statements of income/(loss) and comprehensive income/(loss).
Derivative Instruments
Derivative instruments are carried at fair value. The fair values of the derivative financial instruments generally represent the estimated amounts
expect to receive or pay upon termination of the contracts as of the reporting date.
As of December 31, 2019, the Company’s derivative instruments primarily consisted of foreign currency forward contracts which are used to
economically hedge certain foreign denominated liabilities and reduce, to the extent practicable, the potential exposure to the changes that exchange
rates might have on the Company’s earnings, cash flows and financial position. As the derivative instruments do not qualify for hedge accounting
treatment, changes in the fair value are reflected in Other income/(expense) of the consolidated statements of income/(loss) and comprehensive
income/(loss).
In 2020, the Company entered into interest rate swap contracts to swap floating interest payments related to certain borrowings for fixed interest
payments to hedge the interest rate risk associated with certain forecasted payments and obligations. As the abovementioned interest rate derivatives are
designated as cash flow hedges and the hedge is highly effective, all changes in the fair value of the derivative hedging instruments, amounted to
RMB11 million, are recorded in other comprehensive income/(loss)(“OCI”) as unrealized securities holding losses.
As of December 31, 2019 and 2020, and for the years ended December 31, 2018, 2019 and 2020, the balance of the derivative instruments and the
total amount of fair value changes are not material.
Installment credit and nonrecourse securitization debt
The Company provides installment credit solutions to users with the terms generally below one year. Such amounts are recorded at the outstanding
principal amount less allowance for credit losses, and include accrued interest receivable and presented in receivable related to financial services in Note
3.
Since 2018, the Company entered into asset backed securitization arrangements with third-party financial institutions and set up a securitization
vehicle as servicer to issue the revolving debt securities to third party investors, which are collateralized by the transferred assets. The Company
consolidated the servicer of the securitized debt since economic interests are retained in the form of subordinated interests and it acts as the servicer of
securitization vehicle. The proceeds from the issuance of debt securities are reported as securitization debt. The securities are repaid as collections on the
underlying collateralized assets occur and the amounts are included in “short-term debt and current portion of long-term debt” (Note 12) or “long-term
debt” (Note 17) according to the contractual maturities of the debt securities.
As of December 31, 2019 and 2020, the collateralized receivable related to financial services were RMB1.2 billion and RMB0.7 billion,
respectively, and the non-collateralized receivable related to financial services were RMB1.6 billion and RMB1.9 billion, respectively.
As of December 31, 2019 and 2020, the balance of allowance for expected credit losses for the receivable related to financial services amounted to
RMB69 million and RMB112 million, respectively. The Company recognized the interest income from the receivable related to financial services in
Revenue – Others. The interest expenses in relation to the nonrecourse securitization debt were recognized in the cost of revenue. For the years ended
December 31, 2018, 2019 and 2020, the interest incomes and the interest expenses were not material.
The gross amount of the credits provided to users is presented in the investing section of the cash flow statement unless the term of the receivables
is three month or less, in which case it is presented on a net basis by deducting the repayment from the users.
Land use rights
Land use rights represent the prepayments for usage of the parcels of land where the office buildings are located, are recorded at cost, and are
amortized over their respective lease periods (usually over 40 to 50 years).
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Property, equipment and software
Property, equipment and software are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed
using the straight-line method over the following estimated useful lives, taking into account any estimated residual value:
Building
Leasehold improvements
Website-related equipment
Computer equipment
Furniture and fixtures
Software
30-40 years
Lesser of the term of the lease or the estimated useful lives of the assets
3-5 years
3-5 years
3-5 years
3-5 years
The Company recognizes the disposal of Property, equipment and software in general and administrative expenses.
Investments
The Company’s investments include equity method investments, equity securities without readily determinable fair values, equity securities with
readily determinable fair values, held to maturity debt securities, and available-for-sale debt securities.
The Company applies equity method in accounting for its investments in entities in which the Company has the ability to exercise significant
influence but does not have control and the investments are in either common stock or in-substance common stock. Unrealized gains on transactions
between the Company and an affiliated entity are eliminated to the extent of the Company’s interest in the affiliated entity, unrealized losses are also
eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Equity securities without readily determinable fair values are measured and recorded using a measurement alternative that measures the securities
at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes.
Equity securities with readily determinable fair values are measured and recorded at fair value on a recurring basis with changes in fair value,
whether realized or unrealized, recorded through the income statement.
On January 1, 2018, the Company adopted financial instruments accounting standard ASU No. 2016-01, which requires equity investments to be
measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring
consolidation. The standard also required the Company to reclassify the accumulated unrealized gain or loss of the equity investments measured at fair
value that were previously recognized in other comprehensive income to retained earnings on the date of the adoption. Upon the adoption, the Company
reclassified approximately RMB6.1 billion of accumulated other comprehensive income, reflective of the net unrealized gain for the equity securities
with readily determinable fair values that existed as of January 1, 2018, into retained earnings.
Debt securities that the company has positive intent and ability to hold to maturity are classified as held to maturity debt securities and are stated
at amortized cost.
The Company has classified its investments in debt securities, other than the held to maturity debt securities, as available-for-sale securities.
Available-for-sale debt securities are reported at estimated fair value (Note 7) with the aggregate unrealized gains and losses, net of tax, reflected in
“Accumulated other comprehensive loss” in the consolidated balance sheets. If the amortized cost basis of an available-for-sale security exceeds its fair
value and if the Company has the intention to sell the security or it is more likely than not that the Company will be required to sell the security before
recovery of the amortized cost basis, an impairment is recognized in the consolidated statements of operations. If the Company does not have the
intention to sell the security and it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost
basis and the Company determines that the decline in fair value below the amortized cost basis of an available-for-sale security is entirely or partially
due to credit-related factors, the credit loss is measured and recognized as an allowance for credit losses along with the operating expense in the
consolidated statements of operations. The allowance is measured as the amount by which the debt security’s amortized cost basis exceeds the
Company’s best estimate of the present value of cash flows expected to be collected.
The Company monitors its investments for other-than-temporary impairment by considering factors including, but not limited to, current
economic and market conditions, the operating performance of the companies including current earnings trends and other company-specific information.
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Fair value measurement of financial instruments
Financial assets and liabilities of the Company primarily comprise of cash and cash equivalents, restricted cash, time deposits, financial products,
derivative instruments, accounts receivable, due from related parties, available-for-sale debt investments, equity securities, accounts payable, due to
related parties, advances from end users, short-term bank borrowings, other short-term liabilities and long-term debts. As of December 31, 2019 and
2020, except for derivative instruments, long-term debt, equity securities and available-for-sale debt investments, carrying values of these financial
instruments approximated their fair values because of their generally short maturities. The Company reports derivative instruments, equity securities and
available-for-sale debt investments at fair value at each balance sheet date and changes in fair value are reflected in the statements of income and
comprehensive income. The Company disclosed the fair value of its long-term debts based on Level 2 inputs in Note 17.
The Company measures its financial assets and liabilities using inputs from the following three levels of the fair value hierarchy. The three levels
are as follows:
Level 1 inputs are unadjusted quoted prices in active markets for identical assets that the management has the ability to access at the measurement
date.
Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active,
inputs other than quoted prices that are observable for the asset (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or
corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 includes unobservable inputs that reflect the management’s assumptions about the assumptions that market participants would use in
pricing the asset. The management develops these inputs based on the best information available, including the own data.
Business combination
U.S. GAAP requires that all business combinations not involving entities or businesses under common control be accounted for under the
acquisition method. The Company applies ASC 805, “Business combinations”, the cost of an acquisition is measured as the aggregate of the fair values
at the date of exchange of the assets given, liabilities incurred, and equity instruments issued. The costs directly attributable to the acquisition are
expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the
acquisition date, irrespective of the extent of any non-controlling interests. The excess of the (i) the total of cost of acquisition, fair value of the
non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable
net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognized in the consolidated statements of income/(loss) and comprehensive income/(loss).
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and
valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal
values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and
outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry
comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. The
Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a
result, actual results may differ from estimates. Any changes to provisional amounts identified during the measurement period are recognized in the
reporting period in which the adjustment amounts are determined.
Acquisitions
During the periods presented, the Company completed several transactions to acquire controlling shares to enrich its products and to expand
business. The Company makes estimates and judgments in determining the fair value of the acquired assets and liabilities, based in part on independent
appraisal reports as well as its experience with purchasing similar assets and liabilities in similar industries. Major assumptions used in determining the
fair value of these acquired assets include revenue growth rate and weighted average cost of capital. The amount excess of the purchase price over the
fair value of the identifiable assets and liabilities acquired is recorded as goodwill. The major acquisitions during the periods presented are as follows:
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In April 2020, the Company consummated the acquisition of 100% equity interest of an online travel agency with the total cash consideration of
EUR100 million (RMB772 million). The net liability assumed based on their fair values was RMB304 million, including cash acquired with amount of
RMB41 million. The newly identifiable intangible assets were RMB72 million which primarily consist of tradename and supplier relationship. The
tradename is assessed to be indefinite-lived intangible assets. The fair values of the supplier relationship with amount of RMB28 million is amortized
over 10 years on a straight-line basis. The deferred tax liability of RMB16 million as recognized in associated with the identifiable intangible assets. The
goodwill recognized for the acquisition was RMB1.0 billion which primarily made up of the expected synergies from combining operations of the
acquiree and the acquirer, which do not qualify for separate recognition.
In September 2020, the Company consummated the acquisition of 100% equity interest of an online payment agency with the total cash
consideration of RMB 423 million. The net assets acquired based on their fair values was RMB61 million, including cash acquired with amount of
RMB113 million. The newly identifiable intangible asset was RMB324 million which primarily consist of a payment business license which is
amortized over fifteen years on a straight-line basis. The deferred tax liability of RMB81 million as recognized in associated with the identifiable
intangible assets. The goodwill recognized for the acquisition was RMB119 million which is primarily attributable to the expected synergies from the
online payment processing services that will complement the Company’s existing services offered through its online platforms.
In November 2019, the Company obtained control of an online travel agency company in which the Company previously had held 51% equity
interest with substantive participating rights being held by the non-controlling shareholder. The Company obtained control of the acquiree when the
non-controlling shareholder agreed to remove these substantive participating rights. The deemed consideration was the previous held 51% equity
interest with the fair value of RMB259 million. The net assets assumed based on their fair values was RMB115 million, including cash acquired with
amount of RMB11 million. The fair value of non-controlling interest was measured as RMB249 million, taking into account a non-controlling discount.
The goodwill recognized for the acquisition was RMB393 million which is primarily reflects the expected synergies. The Company also recognized a
gain from the re-measurement of its previously held equity interest to the fair value with amount of RMB196 million and reported in other
income/(expense) (Note 2).
In May 2018, the Company consummated a step acquisition by acquiring substantially all the remaining equity interest of an offline travel agency
company in which the Company previously held approximately 48% equity interest. The total purchase consideration was RMB1.1 billion which
included the cash consideration of RMB198 million, the fair value of the previously held equity interest of RMB543 million and equity interest
representing a 1.9% non-controlling interest of one of the Company’s subsidiaries with the fair value of RMB399 million which is determined on
Level 3 measures. The Company recognized a gain from the re-measurement of its previously held equity interest to the fair value with amount of
RMB249 million and reported in other income/(expense) (Note 2). The Company recognized the non-controlling interest of the equity interest disposed
at the book value of the proportionate shares of the net assets of the subsidiary with amount of RMB4 million and the difference between the fair value
of the non-controlling interest with the book value of RMB395 million recorded as additional paid-in capital.
The net liability assumed based on their fair values was RMB212 million, including cash acquired with amount of RMB482 million. The fair
value of non-controlling interest amounting to RMB15 million was measured based on the purchase price, taking into account a discount reflective of
the non-controlling nature of the interest. The newly identifiable intangible assets were RMB269 million which primarily consist of brand name which is
amortized over 10 years on a straight-line basis. The deferred tax liability of RMB67 million as recognized in associated with the identifiable intangible
assets. The goodwill recognized for the acquisition was RMB1.2 billion which is primarily made up of the expected synergies from combining
operations of the acquiree and the acquirer, which do not qualify for separate recognition.
Pro forma results of operations for these acquisitions have not been presented because they are not material to the consolidated income statements
for the years ended December 31, 2018, 2019 and 2020, either individually or in aggregate. Other immaterial acquisitions in 2018, 2019 and 2020 with
total consideration of RMB553 million, RMB17 million and nil respectively resulted in goodwill increase of RMB621 million, nil and nil respectively,
and intangible assets increase of RMB118 million, nil and nil respectively.
Goodwill and other intangible assets
Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the
Company’s acquisitions of interests in its subsidiaries and consolidated VIEs.
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Goodwill was not amortized but is reviewed at least annually for impairment or earlier, if an indication of impairment exists. Recoverability of
goodwill was evaluated using a two-step process. In the first step, the fair value of a reporting unit was compared to its carrying value. If the fair value
of a reporting unit exceeded the carrying value of the net assets assigned to a reporting unit, goodwill was considered not impaired and no further testing
is required. If the carrying value of the net assets assigned to a reporting unit exceeded the fair value of a reporting unit, the second step of the
impairment test was performed in order to determine the implied fair value of a reporting unit’s goodwill. Determining the implied fair value of goodwill
required valuation of a reporting unit’s tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business
combination. If the carrying value of a reporting unit’s goodwill exceeded its implied fair value, goodwill was deemed impaired and was written down
to the extent of the difference. The Company estimated total fair value of the reporting unit using discounted cash flow analysis, and made assumptions
regarding future revenue, gross margins, working capital levels, investments in new products, capital spending, tax, cash flows, and the terminal value of
the reporting unit.
Starting in 2020, the Company adopted the FASB issued ASU 2017-04: Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Under the
amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit
with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the
amendments in this Update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon
transition. It is more likely that, by adopting simplified measurement which eliminates the Step 2 from goodwill impairment test, an entity with the
triggering event for goodwill impairment will recognize more goodwill impairment than it would do under the old model.
As of December 31, 2020, there was no event or any circumstance that the Company identified, which indicated that the fair value of the
Company’s reporting unit was substantially lower than the respective carrying value. There was no impairment of goodwill during the years ended
December 31, 2018, 2019 and 2020. Each quarter the Company reviews the events and circumstances to determine if goodwill impairment may be
indicated.
Separately identifiable intangible assets that have determinable lives continue to be amortized and consist primarily of non-compete agreements,
customer list, supplier relationship, technology, business relationship and payment business license as of December 31, 2019 and 2020. The Company
amortizes intangible assets on a straight-line basis over their estimated useful lives, which is three to fifteen years. The estimated life of amortized
intangibles is reassessed if circumstances occur that indicate the life has changed. Other intangible assets that have indefinite useful life primarily
include trademark and domain names. The Company evaluates indefinite-lived intangible assets each reporting period to determine whether events and
circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite
useful life, the asset is tested for impairment. The Company estimates total fair value of the reporting unit using discounted cash flow analysis, and
makes assumptions regarding future revenue, gross margins, working capital levels, investments in new products, capital spending, tax, cash flows, and
the terminal value of the reporting unit.
The Company reviews intangible assets with indefinite lives annually for impairment or earlier, if an indication of impairment exists.
No impairment on other intangible assets was recognized for the years ended December 31, 2018, 2019 and 2020, respectively.
Impairment of long-lived assets
Long-lived assets (including intangible with definite lives) are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Reviews are performed to determine whether the carrying value of asset group is impaired,
based on comparison to undiscounted expected future cash flows. If this comparison indicates that there is impairment, the Company recognizes
impairment of long-lived assets to the extent the carrying amount of such assets exceeds the fair value.
Accrued liability for rewards program
The Company’s end users participate in a loyalty points program. The points awarded from services can be redeemed for cash or used to purchase
gifts on the Company’s website and mobile platforms.
The estimated incremental costs of the loyalty points program are recognized as sales and marketing expense, or as reduction of the revenue,
depending on whether it can be redeemed to gifts or redeemed for cash, and accrued for as a current liability. As members redeem awards or their
entitlements expire, the accrued liability is reduced correspondingly. As of December 31, 2019 and 2020, the Company’s accrued liability for its rewards
program amounted to RMB478 million and RMB478 million, respectively, based on the estimated liabilities under the rewards program. In 2018, 2019
and 2020, the expenses recognized for the rewards program were immaterial.
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Deferred revenue
The Company has a coupon program, through which the Company provides coupons for end users who book selected hotels online through
website. The end users who use the coupons receive credits in their virtual cash accounts upon check-out from the hotels and reviews for hotels
submitted. The end users may redeem the amount of credits in their virtual cash account in cash or voucher for their future bookings on the Company’s
website and mobile platforms. The Company accounts for the estimated cost of future usage of coupons as reduction of the revenue.
Revenue recognition
On January 1, 2018, the Company adopted revenue guidance ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The
standard did not change the presentation of the Company’s revenues, which continues to be substantially reported on a net basis as the travel supplier is
primarily responsible for providing the underlying travel services and the Company does not control the service provided by the travel supplier to the
traveler. Revenues are recognized at gross amounts for merchant business where the Company undertakes substantive inventory risks by pre-purchasing
inventories. However, the timing of revenue recognition for certain revenue streams is changed under the standard.
Revenue from accommodation reservation services, transportation ticketing services, packaged tours, and corporate travel are substantially
recognized at a point of time when the performance obligations that are satisfied. Revenue from other businesses comprise primarily of online
advertising services and financial services, which are recognized ratably over the time.
Accommodation reservation services
The Company receives commissions from travel suppliers for hotel room reservations through the Company’s transaction and service platform.
Commissions from hotel reservation services rendered are recognized when the reservation becomes non-cancellable which is the point considered when
the Company completes its performance obligation in accommodation reservation services which include reservation and various post-booking services.
Contracts with certain travel suppliers contain incentive commissions typically subject to achieving specific performance targets. The incentive
commissions are considered as variable consideration and are estimated and recognized to the extent that the Company is entitled to such incentive
commissions. The Company generally receives incentive commissions from monthly arrangements with hotels based on the number of hotel room
reservations where end users have completed their stay. The Company presents revenues from such transactions on a net basis in the statements of
income and comprehensive income as the Company, generally, does not control the service provided by the travel supplier to the traveler and has no
obligations for cancelled hotel reservations. The amount of accommodation reservation services revenues recognized at gross basis were immaterial
during the years ended December 31, 2018, 2019 and 2020, respectively.
Transportation ticketing services
Transportation ticketing services revenues mainly represent revenues from tickets reservations and other related services. The Company receives
commissions from travel suppliers for ticketing services through the Company’s transaction and service platform under various services agreements.
Commissions from ticketing services rendered are recognized after tickets are issued as this is when the Company’s performance obligation is satisfied.
The Company presents revenues from such transactions on a net basis in the statements of income as the Company, generally, does not control the
service provided by the travel supplier to the traveler and has no obligations for cancelled airline ticket reservations. Loss due to obligations for
cancelled ticket reservations is minimal in the past. The amount of transportation ticketing services revenues recognized at gross basis were immaterial
during the years ended December 31, 2018, 2019 and 2020, respectively.
As a result of the COVID-19 pandemic, the Company received a significant volume of the requests for ticketing order cancellations and refunds
from its users due to the extended travel restrictions. For the orders of which the commissions were previously recognized in 2019, the Company
reversed the commission revenue upon the cancellation in 2020. For the year ended December 31, 2020, the amount of the reversal of commission
revenue previously recognized in 2019 is not material.
Packaged tours
The Company receives referral fees from travel product providers for packaged-tour products and services through the Company’s transaction and
service platform. Referral fees are recognized on the departure date of the tours as this is when the Company’s performance obligation is satisfied. The
Company presents revenues from such transactions on a net basis in the statements of income when the Company does not control the service provided
by the travel supplier to the traveler and has no obligations for cancelled packaged-tour products reservations. The Company presents majority of its
packaged-tour products and services revenues recognized on a net basis during the years ended December 31, 2018, 2019 and 2020, respectively.
Corporate travel
Corporate travel management revenues primarily include commissions from air ticket booking, hotel reservation and packaged-tour services
rendered to corporate clients. The Company contracts with corporate clients based on service fee model. Travel reservations are made via on-line and
off-line services for air tickets, hotel and package-tour. Revenue is recognized on a net basis after the services are rendered and collections are
reasonably assured.
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Other businesses
Other businesses comprise primarily of online advertising services and financial services.
The Company receives advertising revenues, which principally represent the sale of banners or sponsorship on the website and mobile from
customers. Advertising revenues are recognized ratably over the fixed term of the agreement as services are provided. The Company recognizes the
revenue from the financial services ratably over the service period.
Allowance for expected credit losses
On January 1, 2020, the Company adopted the accounting standards update on the measurement of credit losses, which requires the Company to
estimate lifetime expected credit losses upon recognition of the financial assets. The Company adopted the accounting standards update using a
modified retrospective approach. Upon adoption of the new standard on January 1, 2020, the Company recorded a net decrease to its retained earnings
of RMB83 million, net of tax.
The Company’s accounts receivable, prepayments and other current assets (including the receivables of financial services), due from related
parties, long-term deposits and prepayments and long-term receivables due from related parties are within the scope of ASC Topic 326. The Company
has identified the relevant risk characteristics of its customers and the related receivables and prepayments, which include size, type of the reservation
services the Company provides or geographic location of the customer, or a combination of these characteristics. Receivables with similar risk
characteristics have been grouped into pools. For each pool, the Company considers the historical credit loss experience, current economic conditions,
supportable forecasts of future economic conditions, and any recoveries in assessing the lifetime expected credit losses. Other key factors that influence
the expected credit loss analysis include customer demographics, payment terms offered in the normal course of business to customers, and industry-
specific factors that could impact the Company’s receivables. Additionally, external data and macroeconomic factors are also considered. This is
assessed at each quarter based on the Company’s specific facts and circumstances.
Significant judgments and assumptions are required to estimate the allowance for expected credit losses on receivables from and prepayments to
customers and such assumptions may change in future periods, particularly the assumptions related to the impact of the COVID-19 pandemic on the
business prospects and financial condition of customers and the Company’s ability to collect the receivable or recover the prepayment. For the year
ended December 31, 2020, the Company facilitated and processed significant volume of the reservation cancellation requests from the end users due to
the COVID-19 pandemic, causing significant increase of the accounts receivables due from the customers (i.e. the travel suppliers) due to the fact that
the Company paid the refunds to the end users on behalf of its customers and expected to be reimbursed by its customers. Given the business disruptions
and financial challenges faced by the Company’s customers as driven by the COVID-19 pandemic, the Company has further analyzed the credit risks of
related customers with the considerations including the recent credit losses, repayment pattern and business conditions. Such analysis was performed at
individual customer’s level or a group of customer’s level, depending on the amount and extent of overdue as well as the risk characteristics of the
different customers. As a result of such analysis, the company has increased its allowance for expected credit losses on both balances of the receivables
from and prepayments to its customers.
The following table summarized the details of the Company’s allowance for expected credit losses (RMB in millions):
Balance at beginning of year
Cumulative effect of adoption of new accounting standard
Deconsolidation of subsidiaries
Allowance for credit losses
Write-offs
Balance at end of year
2018
2020
2019
129 156 256
— — 83
— — (27)
69 191 700
(42) (91) (213)
156 256 799
Cost of revenues
Cost of revenues consists primarily of payroll compensation of customer service center personnel, credit card service fee, payments to travel
suppliers, telecommunication expenses, direct cost of principal travel tour services, depreciation, rentals and related expenses incurred by the
Company’s transaction and service platform which are directly attributable to the rendering of the Company’s travel related services and other
businesses.
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Product development
Product development expenses include expenses incurred by the Company to develop the Company’s travel supplier networks as well as to
maintain, monitor and manage the Company’s transaction and service platform. The Company recognizes website, software and mobile applications
development costs in accordance with ASC 350-50 “Website development costs” and ASC 350-40 “Software — internal use software” respectively,
which are not material. The Company expenses all costs that are incurred in connection with the planning and implementation phases of development
and costs that are associated with repair or maintenance of the existing websites and mobile applications or the development of software or mobile
applications for internal use and websites content.
Sales and marketing
Sales and marketing expenses consist primarily of costs of payroll and related compensation for the Company’s sales and marketing personnel,
advertising expenses, and other related marketing and promotion expenses. Advertising expenses, amounting to approximately RMB6.0 billion,
RMB5.5 billion and RMB1.9 billion for the years ended December 31, 2018, 2019 and 2020 respectively, are charged to the statements of income as
incurred.
Share-based compensation
Under ASC 718, the Company applied the Black-Scholes valuation model in determining the fair value of options granted. Risk-free interest rates
are based on US Treasury yield for the terms consistent with the expected life of award at the time of grant. Expected life is based on historical exercise
patterns. Expected dividend yield is determined in view of the Company’s historical dividend payout rate and future business plan. The Company
estimates expected volatility at the date of grant based on historical volatilities. The Company recognizes compensation expense on all share-based
awards on a straight-line basis over the requisite service period. Forfeiture rate is estimated based on historical forfeiture patterns and adjusted to reflect
future change in circumstances and facts, if any. If actual forfeitures differ from those estimates, the Company may need to revise those estimates used
in subsequent periods.
According to ASC 718, a change in any of the terms or conditions of stock options shall be accounted for as a modification of the plan. Therefore,
the Company calculates incremental compensation cost of a modification as the excess of the fair value of the modified option over the fair value of the
original option immediately before its terms are modified, measured based on the share price and other pertinent factors at the modification date. For
vested options, the Company would recognize incremental compensation cost in the period the modification occurs and for unvested options, the
Company would recognize, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized
compensation cost for the original award on the modification date.
According to ASC 718, the Company classifies certain options or similar instruments as liabilities if the entity can be required under any
circumstances to settle the option or similar instrument by transferring cash or other assets and such cash settlement is probable. The percentage of the
fair value that is accrued as compensation cost at the end of each period shall equal the percentage of the requisite service that has been rendered at that
date. Changes in fair value of the liability classified award that occur during the requisite service period shall be recognized as compensation cost over
that period. Changes in fair value that occur after the end of the requisite service period are compensation cost of the period in which the changes occur.
Any difference between the amount for which a liability award is settled and its fair value at the settlement date as estimated is an adjustment of
compensation cost in the period of settlement.
Share incentive plans
In October, 2007, the Company adopted a 2007 Share Incentive Plan (“2007 Incentive Plan”). As of December 31, 2019 and 2020, 2,438,190 and
2,133,432 options and 429,354 and 2,899 RSUs were outstanding under the 2007 Incentive Plan.
In June, 2017, the Company adopted a Global Share Incentive Plan (“Global Incentive Plan”). The Company granted 1,690,090 and 1,115,156
new share options and 18,750 and 68,861 new RSUs to employees with 4 year requisite service period for year ended December 31, 2019 and 2020,
respectively. As of December 31, 2019 and 2020, 4,357,922 and 5,064,550 options and 71,742 and 113,915 RSUs were outstanding under the Global
Incentive Plan.
In December, 2019, the Company completed a one-time modification of share options (the “Modification”), pursuant to which eligible employees
were able to exchange every four of the share options that were granted under the 2007 Incentive Plan and the Global Incentive Plan, with the exercise
price exceeding US$320 per ordinary share, for one new option entitling each eligible grantee to purchase one ordinary share at the exercise price of
US$0.01 with the original vesting schedules remaining unchanged. As a result of the Modification, 835,849 options were exchanged for 209,026 new
options. The incremental compensation cost of the Modification was immaterial.
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The following table summarized the Company’s share option activity under all the option plans (in US$, except shares):
Outstanding at December 31, 2017
Granted
Exercised
Forfeited
Outstanding at December 31, 2018
Granted
Exercised
Forfeited
Modified
Converted from modification
Outstanding at December 31, 2019
Granted
Exercised
Forfeited
Outstanding at December 31, 2020
Vested and expect to vest at December 31, 2020
Exercisable at December 31, 2020
Number of
Shares
4,710,758
3,286,756
(1,050,382)
(238,124)
6,709,008
1,690,090
(735,416)
(240,747)
(835,849)
209,026
6,796,112
1,115,156
(436,995)
(276,291)
7,197,982
6,877,378
3,190,431
Weighted
Average
Exercise
Price
168.80
204.65
92.58
171.61
198.19
158.95
91.14
167.40
338.91
0.01
177.71
127.00
55.68
96.03
180.40
181.26
203.71
Weighted
Average
Remaining
Contractual
Life (Years)
4.72
Aggregate
Intrinsic Value
(in millions)
867
5.62
366
5.63
679
5.16
5.09
3.41
704
667
250
The Company’s current practice is to issue new shares to satisfy share option exercises.
The expected-to-vest options are the result of applying the pre-vesting forfeiture rate assumptions of 8% to total unvested options.
The aggregate intrinsic value in the table above represents the total intrinsic value (the aggregate difference between the Company’s closing stock
price of US$269.84 (US$33.73 per ADS) as of December 31, 2020 and the exercise price for in-the-money options) that would have been received by
the option holders if all in-the-money options had been exercised on December 31, 2020.
The total intrinsic value of options exercised during the years ended December 31, 2018, 2019 and 2020 were US$356 million US$162 million
and US$159 million, respectively.
The weighted average fair value of options granted during the years ended December 31, 2018, 2019 and 2020 was US$150.38, US$155.76 and
US$125.38 per share, respectively.
As of December 31, 2020, there was US$441 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested
share options which are expected to be recognized over a weighted average period of 2.6 year. Total unrecognized compensation cost may be adjusted
for future changes in estimated forfeitures. Total cash received from the exercise of share options amounted to RMB677 million, RMB467 million and
RMB159 million for the years ended December 31, 2018, 2019 and 2020, respectively. The transfer agent was engaged by the Company to collect the
exercise proceeds and remitted on a regular basis and these amounts were included in “prepayments and other current assets”.
The Company calculated the estimated fair value of share options on the date of grant using the Black-Scholes pricing model with the following
assumptions:
Risk-free interest rate
Expected life (years)
Expected dividend yield
Volatility
Fair value of options at grant date
2018
2.52%-3.09%
5
0%
42%-44%
2019
1.40%-2.44%
5
0%
42%-43%
2020
0.21%-1.32%
4 – 5
0%
40%-43%
per share
from US$88.51 to US$350.71 from US$90.96 to US$259.03 from US$64.97 to US$255.91
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The following table summarized the Company’s RSUs activities under all incentive plans (in US$, except shares):
Number of Shares
Weighted average grant
date fair value(US$)
Restricted shares
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
Granted
Vested
Forfeited
Unvested at December 31, 2019
Granted
Vested
Forfeited
Unvested at December 31, 2020
1,095,722
87,465
(471,773)
(74,208)
637,206
18,750
(119,334)
(35,526)
501,096
68,861
(429,993)
(23,150)
116,814
281.91
331.69
261.48
294.08
302.45
298.64
295.11
309.72
303.54
227.93
300.26
307.36
270.28
As of December 31, 2020, there was US$21 million unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted
shares, which are to be recognized over a weighted average vesting period of 1.7 years. Total unrecognized compensation cost may be adjusted for
future changes in estimated forfeitures. The Company determined the fair value of RSUs based on its stock price on the date of grant.
Leases
The Company applied ASC 842, Leases, on January 1, 2019 on a modified retrospective basis and has elected not to recast comparative periods.
The Company determines if an arrangement is a lease at inception. Operating leases are primarily for office and operation space and are included in
right-of-use (“ROU”) assets, other payables and accruals and long-term lease liabilities on its consolidated balance sheets. ROU assets represent the
Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.
The operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease
term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information
available at lease commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease
payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease. Renewal options are
considered within the ROU assets and lease liability when it is reasonably certain that the Company will exercise that option. Lease expense for lease
payments is recognized on a straight-line basis over the lease term.
For operating leases with a term of one year or less, the Company has elected not to recognize a lease liability or ROU asset on its consolidated
balance sheet. Instead, it recognizes the lease payments as expense on a straight-line basis over the lease term. Short-term lease costs are immaterial to
its consolidated statements of operations and cash flows. The Company has operating lease agreements with insignificant non-lease components and
have elected the practical expedient to combine and account for lease and non-lease components as a single lease component.
Upon the adoption of the new lease standard, on January 1, 2019, the Company recognized operating lease assets of RMB1.0 billion and total
operating lease liabilities of RMB980 million (including a current liability of RMB322 million) in the consolidated balance. There was no impact to
retained earnings at adoption.
Taxation
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are
not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are
provided using the balance sheet liability method. Under this method, deferred income taxes are recognized for the tax consequences of significant
temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The
effect on deferred taxes of a change in tax rates is recognized in income in the period enacted. A valuation allowance is provided to reduce the amount
of deferred tax assets if it is considered unlikely that some portion of, or all of, the deferred tax assets will not be realized.
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The Company applies ASC 740, “Income Taxes”. It clarifies the accounting for uncertainty in income taxes recognized in the Company’s
consolidated financial statements and prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. It also provides guidance on derecognition of income tax assets and liabilities, classification of current and
deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim
periods, and income tax disclosures.
Other income/(expense)
Other income/(expense) consists of financial subsidies and investment income/(loss). Financial subsidies primarily relate to the non-recurring
grants by central and local governments of China. The Company recognizes the income when the grants are received and no further conditions need to
be met. Components of other income/(expense) were as follows (RMB in millions):
Gain on deconsolidation of subsidiaries (Note 18)
Subsidy income
(Provision)/settlement of provision and contingent liability balances related to an equity method
investment (a)
Gain from the re-measurement of the previously held equity interest to the fair value in the
business acquisition (Note 2)
Foreign exchange losses
Gain/(loss) on disposal of long-term investments (Note 7)
Fair value changes of equity securities investments and Exchangeable Senior Notes
Impairments of long-term investments
Others
Total
2018
2020
2019
— 161 1,091
469 589 601
(61) 603 —
249 196 —
(17) (378)
(40)
1,181 318 (602)
(3,064) 2,334 (612)
— (205) (905)
12 194
(1,075) 3,630 (273)
168
(a)
In 2017, based on the impairment assessment by considering the operating results, market condition and business updates, a provision of
RMB536 million for the loan and receivable balance due from Skysea Holding International Ltd (“Skysea”) was provided and a liability of
RMB367 million for the contingent payable was recorded in “Other payables and accruals” which reflected the then best estimates of the liability
to be assumed by the Company and offset by the proceeds from the net realisable value of Skysea in the event of winding down of its business. In
2019, Skysea completed its winding down of the business and the Company entered into the final settlement with Skysea. According to the final
settlement, the Company collected the amount due from Skysea and settled the provision and contingent liability of RMB603 million (recognized
as other income), which includes RMB236 million previously made for loan receivable and RMB367 million previously made for contingent
payables.
Statutory reserves
The Company’s PRC subsidiaries and the VIEs are required to allocate at least 10% of their after-tax profit to the general reserve in accordance
with the PRC accounting standards and regulations. The allocation to the general reserve will cease if such reserve has reached to 50% of the registered
capital of respective company. Appropriations to discretionary surplus reserve are at the discretion of the board of directors of the VIEs. These reserves
can only be used for specific purposes and are not transferable to the Company in form of loans, advances, or cash dividends. There is no such
regulation of providing statutory reserve in Hong Kong.
Dividends
Dividends are recognized when declared.
PRC regulations currently permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting
standards and regulations. The Company’s PRC subsidiaries can only distribute dividends after they have met the PRC requirements for appropriation to
statutory reserves. Additionally, as the Company does not have any direct ownership in the VIEs, the VIEs cannot directly distribute dividends to the
Company. 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. As the majority of the Company’s revenues are in RMB, any restrictions on currency
exchange may limit the Company’s ability to use revenue generated in RMB to fund the Company’s business activities outside China or to make
dividend payments in U.S. dollars. However, the Company believes the restrictions on currency exchange imposed by the PRC foreign exchange
regulations and enforced by SAFE do not constitute the “restrictions” under Rule 4-08(e)(3) under Regulation S-X, because such restrictions in
substance do not prohibit the Company’s subsidiaries or VIEs from transferring net assets to the Company in the combined forms of loans, advances and
cash dividends without the consent of SAFE, provided that certain procedural formalities should be complied with. As of December 31, 2020, the
restricted net assets of the Company’s PRC subsidiaries and VIEs not distributable in the form of dividends to the parent as a result of the aforesaid PRC
regulations and other restrictions were RMB7.8 billion.
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Table of Contents
As a result of the aforementioned PRC regulation and the Company’s organizational structure, accumulated profits of the subsidiaries in PRC
distributable in the form of dividends to the parent as of December 31, 2018, 2019 and 2020 were RMB15.8 billion, RMB21.9 billion and
RMB25.8 billion, respectively. The Company’s PRC subsidiaries and VIEs are able to enter into royalty and trademark license agreements or certain
other contractual arrangements at the sole discretion of the Company, for which the compensatory element of the arrangement is deducted from the
accumulated profits.
Effective January 1, 2008, current EIT Law imposes a 10% withholding income tax for dividends distributed by foreign invested enterprises to
their immediate holding companies outside mainland China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between
mainland China and the jurisdiction of the foreign holding company. Distributions to holding companies in Hong Kong that satisfy certain requirements
specified by PRC tax authorities, for example, will be subject to a 5% withholding tax rate. Furthermore, pursuant to the applicable circular and
interpretations of the current EIT Law, dividends from earnings created prior to 2008 but distributed after 2008 are not subject to withholding income
tax.
No dividends have been paid or declared by the Company during the years ended December 31, 2018, 2019 and 2020.
Earnings/(losses) per share
In accordance with “Computation of Earnings Per Share”, basic earnings per share is computed by dividing net income attributable to common
shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by dividing net
income attributable to common shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of
ordinary and dilutive ordinary equivalent shares outstanding during the year. Dilutive ordinary equivalent shares consist of ordinary shares issuable upon
the exercise of outstanding share options (using the treasury stock method). Vested but unexercised stock options with exercise prices that represent little
or no consideration are included in the weighted average shares outstanding in the basic earnings per share calculation.
If the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split,
the computations of basic and diluted EPS shall be adjusted retroactively for all periods presented to reflect that change in capital structure. If changes in
common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the period but before the financial statements
are issued or are available to be issued, the per-share computations for those and any prior-period financial statements presented shall be based on the
new number of shares.
Effective December 1, 2015, the ratio of the Company’s American depositary shares (“ADSs”) to ordinary shares is eight (8) ADSs representing
one (1) ordinary share.
Treasury stock
The share-repurchase programs do not require the Company to acquire a specific number of shares and may be suspended or discontinued at any
time.
Segment reporting
The Company operates and manages its business as a single segment. Resources are allocated and performance is assessed by the CEO, who is
determined to be the Chief Operating Decision Maker (CODM). Since the Company operates in one reportable segment, all financial and product
information required can be found in the consolidated financial statements.
The Company primarily generates its revenues from the Greater China Area, for geographic information, please refer to Note 21.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU
provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss
for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax
and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of
goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it
should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual
effective tax rate computation in the interim period that includes the enactment date. The standard is effective for the Company for fiscal years
beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact.
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In January 2020, the FASB issued Accounting Standards Update No. 2020-01, Investments— Equity Securities (Topic 321), Investments—Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic
815. The amendments clarified that an entity should consider observable transactions that require it to either apply or discontinue the equity method of
accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing
the equity method. The amendments also clarified that for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether,
upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities
would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic
825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts
and purchased options. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and
interim periods within those fiscal years. The standard is effective for the Company for fiscal years beginning after December 15, 2020, with early
adoption permitted. The Company is currently evaluating the impact.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting”, which provides optional expedients and exceptions for applying U.S. GAAP on contract modifications and hedge accounting to
contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference
rate reform, if certain criteria are met. These optional expedients and exceptions provided in ASU 2020-04 are effective for the Company as of
March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact.
In August 2020, the FASB issued a new accounting update relating to convertible instruments and contracts in an entity’s own equity. For
convertible instruments, the accounting update reduces the number of accounting models for convertible debt instruments and convertible preferred
stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared
with current U.S. GAAP. The accounting update amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to
reduce form-over-substance-based accounting conclusions. The accounting update also simplifies the diluted earnings per share calculation in certain
areas. For public business entities, the update is effective for fiscal years beginning after December 15, 2021, including interim periods within those
fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Entities are
allowed to apply this update on either a full or modified retrospective basis. The Company is in the process of evaluating the impact of the Update on its
consolidated financial statements.
Certain risks and concentration
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash
equivalents, restricted cash, short-term investments, accounts receivable, amounts due from related parties, prepayments and other current assets. As of
December 31, 2018, 2019 and 2020, substantially all of the Company’s cash and cash equivalents, restricted cash and short-term investments were held
in major financial institutions located in the PRC and in Hong Kong, which management considers to be of high credit quality based on their credit
ratings. Accounts receivable are generally unsecured and denominated in RMB, and are derived from revenues earned from operations arising primarily
in the PRC.
No individual customer accounted for more than 10% of net revenues for the years ended December 31, 2018, 2019 and 2020. No individual
customer accounted for more than 10% of accounts receivable as of December 31, 2019 and 2020.
Impact of COVID-19
As discussed in Note 2, the Company’s businesses, results of operation, financial positions and cash flows are materially and adversely affected by
the COVID-19 pandemic, including but not limited to the material adverse impact on the Company’s revenues as result of the travel restrictions as well
as significant incremental costs and expenses incurred when facilitating the end users in their cancellations and refund requests. The impacts of COVID-
19 may also include slower collection of receivables and additional credit losses and significant downward adjustments or impairment to the Company’s
long-term investments and goodwill if the impacts become other than temporary.
Because of the significant uncertainties surrounding the COVID-19 which is still evolving, the extent of the business disruption, including the
duration and the related financial impact on subsequent periods cannot be reasonably estimated at this time.
3.
PREPAYMENTS AND OTHER CURRENT ASSETS
Components of prepayments and other current assets as of December 31, 2019 and 2020 were as follows (RMB in millions):
Prepayments and other deposits
Receivable related to financial services (Note 2)
Prepaid expenses
Receivables from financial institutions
Others
Total
F-31
2019
2020
8,395 3,765
2,777 2,462
406 454
200 516
932 658
12,710 7,855
Table of Contents
4.
LONG-TERM DEPOSITS AND PREPAYMENTS
The Company’s subsidiaries and VIEs are required to pay certain amounts of deposit to airline companies and hotel suppliers. The subsidiaries
and VIEs are also required to pay deposit to local travel bureau as pledge for insurance of traveler’s safety.
Components of long-term deposits and prepayments as of December 31, 2019 and 2020 were as follows (RMB in millions):
Deposits paid to airline suppliers
Deposits paid to advertising suppliers
Deposits paid to hotel suppliers
Prepayments for purchase of long lived assets
Others
Total
2019
2020
209 221
54
88
13
36
3
517
120
150
411
1,000
5.
LAND USE RIGHTS
Land use rights are amortized under straight-line method through the respective period of land rights, which are from 40-50 years. Amortization
expense for the years ended December 31, 2018, 2019 and 2020 was approximately RMB3 million, RMB3 million and RMB3 million, respectively. As
of December 31, 2019 and 2020, the net book value was RMB91 million and RMB88 million respectively.
6.
PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software and its related accumulated depreciation and amortization as of December 31, 2019 and 2020 were as follows
(RMB in millions):
Buildings
Computer equipment
Website-related equipment
Furniture and fixtures
Software
Leasehold improvements
Construction in progress
Less: accumulated depreciation and amortization
Total net book value
2019
2020
5,423 5,424
1,217 1,065
1,187 1,402
283
665
169
1
(2,587) (3,229)
6,135 5,780
383
313
188
11
Depreciation expense for the years ended December 31, 2018, 2019 and 2020 was RMB546 million, RMB656 million and RMB790 million,
respectively.
7.
INVESTMENTS
The Company’s long-term investments are consisted of the following (RMB in millions):
Debt investments
Equity investments
Debt investments
Held to maturity debt securities
2019
2020
17,604 18,213
33,674 29,730
51,278 47,943
Held to maturity investments were time deposits and financial products in commercial banks with maturities of more than one year with the
carrying amount of RMB15.1 billion and RMB15.4 billion as of December 31, 2019 and 2020 respectively. As of December 31, 2019 and 2020, the
weighted average maturities periods are 1.5 years and 1.8 years, respectively.
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Table of Contents
Available-for-sale debt investments
The following table summarizes the Company’s available-for-sale debt investments (RMB in millions):
Cost, after adjusted with other-than-temporary impairment
Gross Unrealized Gains, including foreign exchange adjustment
Gross Unrealized Losses, including foreign exchange adjustment
Fair Value
2019
2020
2,693 3,134
257 173
(402) (451)
2,548 2,856
For the years ended December 31, 2018, 2019 and 2020, the unrealized securities holding gain/(loss), net of tax of RMB(16) million, RMB5
million and RMB(21) million, respectively, was reported in other comprehensive income/(loss).
At December 31, 2020, the Company did not have the intent or a requirement to sell its available-for-sale debt investments. The Company
believes that the decline in fair value of the investment is largely due to changes in market and economic conditions related to the COVID-19 pandemic.
The Company also reviewed other available information and at December 31, 2020, expects recovery of the amortized cost basis of the investment.
Equity investments
Equity securities with readily determinable fair values
The following table summarizes the Company’s equity securities with readily determinable fair values (RMB in millions):
Cost, after adjusted with other-than-temporary impairment
Gross Unrealized Gains, including foreign exchange adjustment
Gross Unrealized Losses, including foreign exchange adjustment
Fair Value
2019
2020
4,406 4,765
6,052 6,309
(839)
(421)
10,037 10,235
Equity securities with readily determinable fair values are measured and recorded at fair value on a recurring basis with changes in fair value,
whether realized or unrealized, recorded through the income statement.
Equity securities without readily determinable fair values
Equity securities without readily determinable fair values and over which the Company has neither significant influence nor control through
investments in common stock or in-substance common stock, are measured and recorded using a measurement alternative that measures the securities at
cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. The carrying value of equity securities without
readily determinable fair values was RMB596 million and RMB588 million as of December 31, 2019 and 2020 respectively. There is no fair value
changes related to these investments for the years ended December 31, 2019 and 2020. None of the investments individually is considered as material to
the Company’s financial position.
For the years ended December 31, 2018, 2019 and 2020, the Company disposed certain equity securities without readily determinable fair values
for total consideration of RMB261 million, RMB0 million and RMB30 million, respectively, which results a gain/(loss) of RMB122 million, RMB(1)
million and RMB1 million as reported in other income/(expense), respectively. In 2018, the Company also paid certain equity securities without readily
determinable fair values with amount of RMB294 million for business acquisition.
For the years ended December 31, 2018, 2019 and 2020, the Company made investments in equity investments without readily determinable fair
values with amount of RMB92 million, RMB89 million and RMB94 million, respectively.
Equity method investments
In December 2016, in connection of share exchange transaction with BTG Hotels Company (“BTG”) and Homeinns Hotel Company
(“Homeinns”), the Company exchanged its previously held equity interest in Homeinns for 22% equity interest of BTG. The Company applied equity
method to account for the investment in BTG on one quarter lag basis. As of December 31, 2019 and 2020, the carrying value of its investment in BTG
were RMB2.8 billion and RMB2.7 billion respectively, the change of which primarily relates to the equity income or loss recognized.
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Table of Contents
Tujia used to be a subsidiary of the Company. In 2015, after a private placement of Tujia, the Company lost the control in Tujia. In 2017, Tujia
completed a restructure and its offline business was assumed by a newly established company and the Company converted part of its preferred shares
investment in Tujia to common shares of Tujia and the newly established company. The Company applies equity method for its common shares
investments on Tujia and the newly established company on one quarter lag basis. The preferred shares investment in Tujia was continued to be
accounted for as available-for-sale debt security. The Company concluded it does not have control over Tujia whilst it has majority ownership of Tujia
since the Company does not have control of the board of directors of Tujia, which makes all the significant decisions of Tujia. As of December 31, 2019,
the carrying value of the equity method investments was RMB1.0 billion, the change of which primarily relates to the equity loss recognized. In 2020,
Tujia Offline consummated an external financing, together with the new investors, the Company obtained certain preferential rights, including the
redemption rights and liquidation preference to its investment which is therefore not considered as in substance of common stock. The investment in
Tujia Offline was then accounted for as available-for-sale debt security and initially measured at its fair value of RMB 0.5 billion. The previously held
equity method investment of RMB1.0 billion in Tujia Offline was then derecognized with a deemed disposal loss of RMB0.4 billion recognized in other
loss. The decrease in the fair value of Tujia was mainly due to the adverse changes in market and economic conditions related to the COVID-19
pandemic. As of December 31, 2019 and 2020, fair value of the preferred shares were RMB1.5 billion and RMB1.9 billion, respectively.
In May 2015, the Company acquired approximately 38% share capital of eLong, Inc. (“eLong”) and applied equity method on one quarter lag
basis. In May 2016, eLong completed its “going-private” transaction and merger with E-dragon Holdings Limited (“E-dragon”) (“Reorganization”).
After the Reorganization, the Company applies equity method for its ordinary shares investment in E-dragon’s on one quarter lag basis and the preferred
shares of E-dragon are classified as available-for-sale debt security. In March 2018, E-dragon consummated a merger with Tongcheng Network
Technology Co.,Ltd (“LY.com”) with share swap transaction. The Company received an equity method investment in the enlarged group with previously
held equity investment and preferred shares of E-dragon be exchanged. The Company recognized the gain of RMB847 million as reported in other
income on receipts the shares in the enlarged group in 2018, and recognized the gain of RMB267 million as reported in other income when certain
accrued tax related indemnification liability for the other shareholders of LY.com was reversed based on the final settlement in 2019. During the year
ended December 31, 2018, the Company acquired additional equity interest with total consideration of RMB1.4 billion. After these transactions, the
Company has 27% equity interest in the enlarged group and applied equity method for this investment. As of December 31, 2019 and 2020, the carrying
value of its equity investment was RMB5.5 billion and RMB5.5 billion respectively, the change of which primarily relates to the equity income
recognized.
The shares of MakeMyTrip Limited (“MakeMyTrip”) are listed in Nasdaq Stock Exchange. The Company used to hold approximately 10% equity
interest in MakeMyTrip and accounted for the investment as equity securities with readily determinable fair values. In August 2019, the Company
consummated a share exchange transaction with Naspers Limited (“Naspers”), a shareholder of MakeMyTrip, pursuant to which Naspers exchanged
certain ordinary shares and Class B convertible ordinary shares of MakeMyTrip for the Company’s newly issued 4,108,831 ordinary shares. Concurrent
with the share exchange, the Company made the investment in a third-party investment entity by contributing certain ordinary shares and Class B shares
of MakeMyTrip held by the Company and recorded the investment using equity method. After these transactions, the Company owns ordinary shares
and Class B shares of MakeMyTrip, representing approximately 49% of MakeMyTrip’s total voting power with the total consideration of approximately
US$1.2 billion (RMB8.7 billion), which included US$1.0 billion (RMB6.9 billion) newly issued ordinary shares of the Company and US$0.2 billion
(RMB1.8 billion) of its previously held equity investment. The Company applied equity method to account for the investment in MakeMyTrip on one
quarter lag basis. In 2020, as result of adverse impact on the business of MakeMyTrip from the COVID-19 pandemic which is considered as other-than-
temporary, the Company provided impairment on its investment on MakeMyTrip with amount of RMB0.7 billion according to its market price. As of
December 31, 2019 and 2020, the carrying value of its investment was RMB8.5 billion and RMB5.7 billion.
As of December 31, 2020, equity method investments that are publicly traded with an aggregate carrying amount of RMB14.1 billion have
increased in value and the total market value of these investments amounted to RMB20.2 billion.
The Company made some investments in several third party investment funds and accounted for the investments under equity methods on one
quarter lag basis. As of December 31, 2019 and 2020, the carrying value of these investments were RMB2.5 billion and RMB2.5 billion respectively.
As of December 31, 2019 and 2020, the carrying value of the rest equity method investments were RMB2.8 billion and RMB2.4 billion,
respectively.
The Company summarizes the condensed financial information of the Company’s equity method investments as a group below in compliance with
Rule 4-08 of Regulation S-X (RMB in millions).
Operating data:
Revenue
Gross profit
Income/(loss) from operations
Net income/(loss)
Net loss attributable to equity method investments
Add: Equity dilution impact
Add: Gain from disposal of equity method investments
Equity in loss of affiliates
2018
2019
2020
equity investments
equity investments
MakeMyTrip
17,429
11,513
294
990
(81)
7
42
(32)
F-34
28,423
17,608
2,590
970
(440)
93
—
(347)
1,883
1,377
(991)
(2,864)
(1,459)
92
—
(1,367)
other equity
investments
19,704
8,670
(805)
(1,631)
(389)
68
—
(322)
Table of Contents
Balance sheet data:
Current assets
Long-term assets
Current liabilities
Long-term liabilities
Non-controlling interests
2018
2019
2020
equity investments
equity investments
MakeMyTrip
26,612
37,435
20,404
12,011
232
41,940
45,968
31,769
10,677
342
1,682
5,121
1,100
221
24
other equity
investments
35,004
37,028
27,914
9,054
167
For the years ended December 31, 2018, 2019 and 2020, the total cash paid for equity method investments was RMB1.7 billion, RMB1.4 billion
and RMB351 million, respectively.
Impairments
The Company performs impairment assessment of its investments by considering factors including, but not limited to, current economic and
market conditions with the considerations of COVID-19 impacts, as well as the operating performance of the investees. For the years ended December
31, 2018, 2019 and 2020, impairment charges in connection with the available-for-sale debt investment of nil, RMB150 million and nil were recorded.
Impairment charges in connection with the equity securities with readily determinable fair value of nil, nil and RMB28 million were recorded.
Impairment charges in connection with the equity securities without readily determinable fair value of nil, RMB55 million and RMB37 million were
recorded. Impairment charges in connection with the equity method investments of RMB61 million, nil and RMB840 million were recorded. The
impairment was recorded in “Other income/(expense)” (Note 2).
8.
FAIR VALUE MEASUREMENT
In accordance with ASC 820-10, the Company measures financial products, time deposits, derivative instruments, available-for-sale debt
investments and equity securities with readily determinable fair value at fair value on a recurring basis. Equity securities classified within Level 1 are
valued using quoted market prices that currently available on a securities exchange registered with the Securities and Exchange Commission (SEC),
Shanghai Stock Exchange (SSE) or Hong Kong Stock Exchange (HKEX). Financial products, time deposits and derivative instruments classified within
Level 2 are valued using directly or indirectly observable inputs in the market place. The available-for-sale debt investments classified within Level 3
are valued based on a model utilizing unobservable inputs which require significant management judgment and estimation.
The equity securities without readily determinable fair value, equity method investments and certain non-financial assets are recorded at fair value
only if an impairment or observable price adjustment is recognized in the current period. If an impairment or observable price adjustment is recognized
on the equity securities during the period, the Company classify these assets as Level 3 within the fair value hierarchy based on the nature of the fair
value inputs.
Assets measured at fair value on a recurring basis are summarized below (in millions):
Assets
Financial products
Time deposits
Derivative:
Foreign currency forward contracts
Equity securities
Available-for-sale debt investments
Total Assets
Liabilities
Derivative:
Foreign currency forward contracts
Total Liabilities
Fair Value Measurement at
December 31, 2019 Using
Level 1 Level 2 Level 3 Fair Value at December 31, 2019
RMB
RMB
RMB
RMB
US$
—
—
25,679
12,319
—
—
—
10,037
—
10,037
116
—
—
38,114
—
—
2,548
2,548
25,679
12,319
116
10,037
2,548
50,699
3,689
1,769
17
1,442
366
7,283
—
—
9
9
—
—
9
9
1
1
F-35
Table of Contents
Assets
Financial products
Time deposits
Derivative:
Foreign currency forward contracts
Equity securities
Available-for-sale debt investments
Total Assets
Liabilities
Derivative:
Foreign currency forward contracts
Interest rate swap contract
Total Liabilities
Fair Value Measurement at
December 31, 2020 Using
Level 1 Level 2 Level 3 Fair Value at December 31, 2020
RMB
RMB
RMB
RMB
US$
—
—
22,752
17,373
—
—
—
10,235
—
10,235
51
—
—
40,176
—
—
2,856
2,856
—
—
—
46
11
57
—
—
—
22,752
17,373
51
10,235
2,856
53,267
46
11
57
3,487
2,663
8
1,569
438
8,165
7
2
9
The roll forward of major Level 3 investments are as follows (RMB in millions):
Fair value of Level 3 investments as at December 31, 2018
Transfer into Level 3
New addition
Disposal of investments
Effect of exchange rate change
Other-than-temporary impairment
The change in fair value of the investments
Fair value of Level 3 investments as at December 31, 2019
Transfer into Level 3
New addition
Disposal of investments
Effect of exchange rate change
The change in fair value of the investments
Fair value of Level 3 investments as at December 31, 2020
Total
2,717
55
153
(93)
25
(205)
(104)
2,548
563
54
(25)
(131)
(153)
2,856
Management determined the fair value of these Level 3 investments based on income approach using various unobservable inputs. The determination of
the fair value required significant judgement by management with respect to the assumptions and estimates for the revenue growth rate, weighted
average cost of capital, lack of marketability discounts, expected volatility and probability in equity allocation. The significant unobservable inputs
adopted in the valuation as of December 31, 2020 are as follows:
Unobservable Input
Revenue growth rate
Weighted average cost of capital
Lack of marketability discount
Expected volatility
Probability
3%-140%
15%-17%
15%~20%
40%~53%
Liquidation scenario: 30%~70%
Redemption scenario: 30%
IPO scenario: 30%~40%
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Table of Contents
9.
GOODWILL
Goodwill, which is not tax deductible, represents the synergy effects of the business combinations. The changes in the carrying amount of
goodwill for the years ended December 31, 2019 and 2020 were as follows (RMB in millions):
Balance at beginning of year
Acquisition
Disposals and immaterial others
Balance at end of year
2019
2020
58,026 58,308
393 1,138
(93)
(111)
58,308 59,353
Goodwill resulting from the business combinations has been allocated to the single reporting unit of the Company. For the years ended
December 31, 2018, 2019 and 2020, the Company performed a qualitative assessment by evaluating relevant events and circumstances that would affect
the Company’s single reporting unit and did not note any indicator that it is more likely than not that the fair value of the Company’s reporting unit is
less than its carrying amount, and therefore the Company’s goodwill was not impaired. As of December 31, 2020, there had not been any accumulated
goodwill impairment provided.
10.
INTANGIBLE ASSETS
Intangible assets were as follows (RMB in millions):
Intangible assets to be amortized
Business Relationship (Representing the relationship with the travel service providers and other
business partners)
Technology
Others
Intangible assets not subject to amortization
Trade mark
Others
Less: accumulated amortization
Intangible assets to be amortized
Business Relationship
Technology
Others
Net book value
Intangible assets to be amortized
Business Relationship
Technology
Others
Intangible assets not subject to amortization
Trade mark
Others
2019 2020
1,844 1,872
633
610
518
799
11,613 11,776
159
158
14,767 15,215
(923) (1,176)
(450)
(541)
(221)
(242)
(1,594) (1,959)
921
183
297
696
69
557
11,613 11,776
159
158
13,173 13,256
Indefinite-lived intangible assets are not subject to the limitation on their useful lives. The Company evaluates to determine whether events and
circumstances continue to support an indefinite useful life in each reporting period.
Finite-lived intangible assets are tested for impairment if impairment indicators arise. The Company amortizes its finite-lived intangible assets
over their estimated economic useful lives using the straight-line method:
Business Relationship
Technology
Others
5-10 years
5-10 years
3-15 years
Amortization expense for the years ended December 31, 2018, 2019 and 2020 was approximately RMB433 million, RMB437 million and
RMB424 million respectively.
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The annual estimated amortization expense for intangible assets subject to amortization for the five succeeding years is as follows (RMB in
millions):
11. LEASES
2021
2022
2023
2024
2025
Amortization
278
240
186
181
155
1,040
The Company has operating leases primarily for office and operation space. The Company’s operating lease arrangements have remaining lease
terms of one to eight years.
Operating lease costs were RMB405 million and RMB416 million for the years ended December 31, 2019 and 2020, respectively.
Supplemental cash flow information related to leases were as follows (RMB in millions):
Cash paid for amounts included in the measurement of lease liabilities
Right-of-use assets obtained in exchange for operating lease liabilities
2019
2020
403
497
415
589
As of December 31, 2019 and 2020, supplemental consolidated balance sheet information related to leases were as follows (RMB in millions):
Right-of-use assets
Current lease liabilities included within Other payables and accruals
Long-term lease liabilities
Total lease liabilities
Weighted average remaining lease term
Weighted average discount rate
Maturities of lease liabilities are as follows (RMB in millions):
2021
2022
2023
2024
2025
Thereafter
Total operating lease payments
Less: imputed interest
Total
2019
1,207
438
749
1,187
2020
987
409
618
1,027
4 years
3 years
4.2%
4.3%
As of December 31,2020
463
347
197
58
17
38
1,120
(93)
1,027
As of December 31, 2019 and 2020, the operating lease arrangements of the Company, primarily for offices premises, that have not yet
commenced is immaterial. For the years ended December 31, 2019 and 2020, the variable lease costs, short-term lease costs and sub-lease income are
immaterial.
For the year ended December 31, 2018, the Company recognized lease expense of RMB502 million under ASC 840.
12.
SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
Short-term bank borrowings and current portion of long-term loan
Securitization debt
2020 Notes (Note 17)
2025 Notes (Note 17)
2020 Booking Notes (Note 17)
2025 Booking and Hillhouse Notes (Note 17)
Total
F-38
2019
2020
RMB (in millions)
21,118 26,756
—
384
4,873 —
2,785 —
1,740 —
— 6,525
30,516 33,665
Table of Contents
As of December 31, 2020, the Company obtained short-term bank borrowings of RMB26.8 billion (US$4.1 billion) in aggregate, of which
RMB7.0 billion (US$1.1 billion) were collateralized by short-term and long-term investments of RMB7.0 billion (US$1.1 billion). The weighted
average interest rate for the outstanding borrowings was approximately 2.89%.
The short-term borrowings contain covenants including, among others, limitation on liens, consolidation, merger and sale of the Company’s
assets. The Company is in compliance with all of the loan covenants as of December 31, 2019 and 2020.
As of December 31, 2020, securitization debt represents the revolving debt securities which are collateralized by the receivable related to financial
services. The revolving debt securities have the term of less than one year with the annual interest rate from 3.85% to 6.90%.
As of December 31, 2020, RMB6.5 billion of 2025 Booking and Hillhouse Notes are reclassified as short-term debt because the 2025 Booking
and Hillhouse Notes holders had a non-contingent option to require the Company to repurchase for cash all or any portion of their 2025 Booking and
Hillhouse Notes on December 11, 2021.
13. RELATED PARTY TRANSACTIONS AND BALANCES
Significant related party transactions were as follows (RMB in millions):
Commissions from Tongcheng-eLong (a)
Commissions from eLong (a)
Commissions from Huazhu (a)
Commissions from BTG (a)
Commissions to Tongcheng-eLong (b)
Commissions to eLong (b)
Commissions to LY.com (b)
Loans provided to and interest income from Tujia (c)
2018 2019 2020
190 217 151
63 — —
61 72 78
93 91 49
516 579 324
66 — —
6 — —
347
—
—
(a)
(b)
(c)
BTG, Huazhu and eLong, have entered into agreements with the Company, respectively, to provide hotel rooms for our end users. In 2018,
eLong completed a merger with LY.com and the enlarged group Tongcheng-eLong supersedes eLong to provide hotel rooms for our end
users. The transactions above represent the commissions earned from these related parties.
The Company entered into agreements with eLong and LY.com, upon which these related parties promote the Company’s hotel rooms on
their platforms. In 2018, eLong completed a merger with LY.com and the enlarged group Tongcheng-eLong supersedes eLong and LY.com
to promote the Company’s hotel rooms on their platforms.
In 2020, the Company provided loans of RMB340 million to Tujia. The loans bore interests of RMB7 million with repayment terms of
15~18 months.
Significant balances with related parties were as follows (RMB in millions):
Due from related parties, current:
Trade related
Due from Tongcheng-eLong
Due from others
Non-trade related
Due from Tujia
Due from others
Due from related parties, non-current:
Non-trade related
Due from others
Due to related parties, current:
Trade related
Due to Tongcheng-eLong
Due to others
2019
2020
2,149
462
1,084
371
—
168
2,779
347
—
1,802
25
25
181
219
400
25
25
127
114
241
14. EMPLOYEE BENEFITS
The Company’s employee benefit primarily related to the full-time employees of the PRC subsidiaries and the VIEs, including medical care,
welfare subsidies, housing fund, unemployment insurance and pension benefits. The PRC subsidiaries and VIEs are required to accrue for these benefits
based on certain percentages of the employees’ salaries in accordance with the relevant PRC regulations and make contributions to the state-sponsored
pension and medical plans out of the amounts accrued for medical and pension benefits. The PRC government is responsible for the medical benefits
and ultimate pension liability to these employees. The total expenses recorded for such employee benefits amounted to RMB1.7 billion, RMB2.0 billion
and RMB1.4 billion for the years ended December 31, 2018, 2019 and 2020 respectively.
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15. TAXATION
Cayman Islands
Under the current laws of Cayman Islands, the Company is not subject to tax on income or capital gain. In addition, upon payments of dividends
by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.
Hong Kong
The Company’s subsidiaries incorporated 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.
The PRC
The Company’s subsidiaries and VIEs registered in the PRC are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income as reported
in their respective statutory financial statements adjusted in accordance with relevant PRC income tax laws.
The PRC EIT laws apply a general enterprise income tax rate of 25% to both foreign-invested enterprises and domestic enterprises. Preferential
tax treatments are granted to enterprises, which conduct business in certain encouraged sectors and to enterprises otherwise classified as a High and New
Technology Enterprise (“HNTE”). In 2020, Ctrip Computer Technology, Ctrip Travel Information, and Ctrip Travel Network reapplied for their
qualification as HNTE, which were approved by the relevant government authority. Thus, these subsidiaries are entitled to a preferential income tax rate
of 15% from 2020 to 2022 as long as they maintained their qualifications for HNTEs that are subject to verification by competent authorities and
renewals every three years. Qunar Software and Qunar Beijing are also HNTEs entitled to a preferential income tax rate of 15% from 2018 to 2020 and
are applying for renewal of their qualifications.
In 2001, the PRC state taxation administration (“STA”) started to implement preferential tax policy in China’s western regions, and companies
located in applicable jurisdictions covered by the Western Regions Catalog are eligible to apply for a preferential income tax rate of 15% if their
businesses fall within the “encouraged” category of the policy. On April 23, 2020, the Ministry of Finance, the STA, and the PRC National Development
and Reform Commission (“NDRC”) jointly issued the Announcement on Renewing the Enterprise Income Tax Policy for Western Development, which
reduced the revenue percentage requirement of the “encouraged” businesses to no less than 60% and would be applied from 2021 to 2030. Chengdu
Ctrip, Chengdu Ctrip International, and Chengdu Information are entitled to enjoy a preferential tax rate of 15% until 2030, provided that their
“encouraged” businesses account for no less than required percentage pursuant to current policies.
Pursuant to the PRC EIT Law, all foreign invested enterprises in the PRC are subject to the withholding tax for their earnings generated after
January 1, 2008. The Company expects to indefinitely reinvest undistributed earnings generated after January 1, 2008 in the onshore PRC entities. As a
result, no deferred tax liability was provided on the outside basis difference from undistributed earnings after January 1, 2008.
Income/(loss) from domestic and foreign components before income tax expenses and equity in loss of affiliates (RMB in millions):
Domestic
Foreign
Total
2018
2020
2019
4,663 8,983 4,230
(2,742) 104 (5,455)
1,921 9,087 (1,225)
The income/(loss) from foreign components mainly includes the gain/(loss) from the equity securities investments and exchangeable senior notes
measured at fair value, impairments for investments, share-based compensation charges, foreign exchange gain/(loss) and interest income/(loss) incurred
in its overseas companies.
The income tax expenses from domestic components for the years ended December 31, 2018, 2019 and 2020 was RMB642 million, RMB1,652
million and RMB528 million, respectively. The income tax expenses/(benefit) from foreign components for the years ended December 31, 2018 and
2019 and 2020 was RMB151 million, RMB90 million and RMB(173) million, respectively.
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Composition of income tax expense
The current and deferred portion of income tax expense were as follows (RMB in millions):
Current income tax expense
Deferred tax benefit
Income tax expense
2018 2019 2020
1,425 1,918 848
(632) (176) (493)
793 1,742 355
Reconciliation of the differences between statutory tax rate and the effective tax rate
The reconciliation between 25% which is the PRC statutory tax rate and the Company’s effective tax rate were as follows:
Statutory tax rate
Non-deductible expenses and non-taxable income incurred
-Share-based compensation expenses
-Change in fair value of equity securities investments and exchangeable senior notes
-Gain on deconsolidation of a subsidiary
-Others
Effect of tax holiday
Difference in tax rates of subsidiaries outside PRC
Change in valuation allowance
Effective EIT rate
2018
25%
2019
25%
2020
25%
22%
19%
—
(4%)
(27%)
4%
2%
41%
5%
(5%)
—
1%
(8%)
(1%)
2%
19%
(38%)
0%
15%
3%
27%
(37%)
(24%)
(29%)
The change in the Company’s effective tax rates from year over year is primarily attributable to the tax differential from certain subsidiaries with
preferential tax rates, the non-deductible expenses and tax effects from investing activities.
The provisions for income taxes for the years ended December 31, 2018, 2019 and 2020 differ from the amounts computed by applying the EIT
primarily due to tax holiday enjoyed by certain subsidiaries and VIEs of the Company. The following table sets forth the effect of tax holiday on China
operations:
Tax holiday effect
Basic net income per ADS effect
Diluted net income per ADS effect
2018
2019
RMB (in millions, except per share data)
520
0.95
0.92
762
1.34
1.19
2020
370
0.62
0.62
The impacts on effective tax rates from the Company’s subsidiaries with different tax rates of subsidiaries outside PRC and tax holiday are as
follows:
Ctrip Computer Technology
Ctrip Travel Information
Ctrip Travel Network
Chengdu Information
The Company and its subsidiaries in Hong Kong and Cayman Islands
Qunar and subsidiaries
Others
Total
15%
15%
15%
15%
16.5%,0%
15%
various
2018
(5.5%)
(4.0%)
(5.7%)
(3.2%)
1.7%
(5.0%)
(1.3%)
(23.0%)
2019
(2.4%)
(1.0%)
(1.9%)
(0.8%)
(0.9%)
(1.5%)
(0.5%)
(9.0%)
2020
15.4%
(0.7%)
14.1%
6.8%
(41.7%)
(2.5%)
(1.4%)
(10.0%)
Significant components of deferred tax assets and liabilities were as follows (RMB in millions):
Deferred tax assets
Accrued expenses
Loss carry forward
Accrued liability for rewards programs
Accrued staff salary
Others
Less: Valuation allowance of deferred tax assets
Deferred tax liabilities:
Recognition of intangible assets arise from business combinations and unrealized holding gain
Net deferred tax liabilities
F-41
2019 2020
673
708
372
862
68
85
138
8
207
321
(482)
(589)
976 1,395
(3,592) (3,574)
(2,616) (2,179)
Table of Contents
Movement of valuation allowances were as follows (RMB in millions):
Balance at beginning of year
Changes in current year
Balance at end of year
2018 2019 2020
197 238 482
41 244 107
238 482 589
As of December 31, 2019 and 2020, valuation allowance of RMB482 million and RMB589 million was mainly provided for operating loss that
could be carried forwards related to certain subsidiaries based on then assessment where it is more likely than not that such deferred tax assets will not
be realized. If events were to occur in the future that would allow the Company to realize more of its deferred tax assets than the presently recorded net
amount, an adjustment would be made to the deferred tax assets that would increase income for the period when those events occurred.
As of December 31, 2020, the Company had net operating tax loss carry forwards amounted to RMB4.1 billion.
As of December 31, 2019 and 2020, the unrecognized tax benefit and accrual is nil.
16. OTHER PAYABLES AND ACCRUALS
Components of other payables and accruals were as follows (RMB in millions):
Accrued operating expenses
Deposits received from travel suppliers and packaged tours users
Current lease liabilities
Payable related to acquisition and investments
Accruals for property and equipment
Others
Total
17. LONG-TERM DEBT
2025 Notes
2022 Notes
2025 Booking and Hillhouse Notes
2022 Booking Notes
Exchangeable Senior Notes
Long-term loan
Securitization debt
Less: Debt issuance cost
Total
438
2019
2020
4,975 4,527
1,044 945
409
76 346
144 126
864 770
7,541 7,123
2019
2020
RMB (in millions)
31
—
331
353
6,962 —
163
174
— 4,249
10,981 17,797
1,074
147
(0)
(7)
19,537 22,718
As of December 31, 2020, the fair value of the Company’s long-term debt, based on Level 2 inputs, was RMB22.7 billion.
Description of 2020 Convertible Senior Notes
On June 18, 2015, the Company issued US$700 million of 1.00% Convertible Senior Notes due 2020 (the “2020 Notes”). The 2020 Notes may be
converted at an initial conversion rate of 9.1942 ADSs per US$1,000 principal amount of the 2020 Notes (which represents an initial conversion price of
US$108.76 per ADS) at any time prior to the close of business on the second business day immediately preceding the maturity date of July 1, 2020.
Debt issuance costs were US$11.3 million and are being amortized to interest expense to the put date of the 2020 Notes (July 1, 2018).
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Absent a fundamental change (as defined in the indenture for the 2020 Notes), each holder of the 2020 Notes had a right at such holder’s option to
require the Company to repurchase for cash all or any portion of such holder’s 2020 Notes on July 1, 2018. The Company believed that the likelihood of
occurrence of events considered a fundamental change is remote. The 2020 Notes were not redeemable prior to the maturity date of July 1, 2020.
Concurrently with the issuance of the 2020 Notes, the Company purchased a call option (“2015 Purchased Call Option”) and sold warrants (“2015
Sold Warrants”) where the counterparty agreed to sell to the Company up to approximately 6.4 million of the Company’s ADSs upon the Company’s
exercise of the 2015 Purchased Call Option and the Company received US$84.4 million from the same counterparty for the sale of warrants to purchase
up to approximately 6.4 million of the Company’s ADSs.
In 2020, the 2020 Notes with principal amount of US$700 million (RMB4.9 billion) were all redeemed for cash.
Description of 2025 Convertible Senior Notes
On June 18, 2015, the Company issued US$400 million of 1.99% Convertible Senior Notes due 2025 (the “2025 Notes”). The 2025 Notes may be
converted, at an initial conversion rate of 9.3555 ADSs per US$1,000 principal amount of the 2025 Notes (which represents an initial conversion price
of US$106.89 per ADS), at each holder’s option at any time prior to the close of business on the second business day immediately preceding the
maturity date of July 1, 2025. Debt issuance costs were US$6.8 million and are being amortized to interest expense to the put date of the 2025 Notes
(July 1, 2020).
Absent a fundamental change (as defined in the indenture for the 2025 Notes), each holder of the 2025 Notes has a right at such holder’s option to
require the Company to repurchase for cash all or any portion of such holder’s 2025 Notes on July 1, 2020, as a result the 2025 Notes were reclassified
from long-term to short-term as of December 31, 2019. If a fundamental change (as defined in the indenture for the 2025 Notes) occurs at any time, each
holder has a right at such holder’s option to require the Company to repurchase for cash all or any portion of such holder’s 2025 Notes on the date
notified in writing by the Company in accordance with the indenture for the 2025 Notes. The Company believes that the likelihood of occurrence of
events considered a fundamental change is remote. The 2025 Notes are generally not redeemable prior to the maturity date of July 1, 2025, except that
the Company may, at its option, redeem all but not part of the 2025 Notes in accordance with the indenture for the 2025 Notes if the Company has or
will become obligated to pay holders additional amount due to certain changes in tax law of the relevant jurisdiction.
In 2020, the Company notified holders of the 2025 Notes of their rights under the relating indenture to require the Company to purchase all of or
portion of such notes on July 1, 2020, which we refer to as the Put Right. As a result of exercise of aforementioned early redemption right, the Company
redeemed US$395 million (RMB2.8 billion) aggregate principal amount of the 2025 Notes as requested by the holders. The remaining RMB31 million
were reclassified as long-term debt as of December 31, 2020 as it may not be redeemed or mature within one year.
Description of 2022 Convertible Senior Notes
On September 12, 2016 and September 19, 2016, the Company issued US$975 million of 1.25% Convertible Senior Notes due 2022 (the “2022
Notes”). The 2022 Notes may be converted, at an initial conversion rate of 15.2688 ADSs per US$1,000 principal amount of the 2022 Notes (which
represents an initial conversion price of US$65.49 per ADS) at each holder’s option at any time prior to the close of business on the business day
immediately preceding the maturity date of September 15, 2022. Debt issuance costs were US$19 million and are being amortized to interest expense to
the put date of the 2022 Notes (September 15, 2019).
Absent a fundamental change (as defined in the indenture for the 2022 Notes), each holder of the 2022 Notes has a right at such holder’s option to
require the Company to repurchase for cash all or any portion of such holder’s 2022 Notes on September 15, 2019, as a result the 2022 Notes were
reclassified from long-term to short-term as of December 31, 2018. If a fundamental change (as defined in the indenture for the 2022 Notes) occurs at
any time, each holder has a right at such holder’s option to require the Company to repurchase for cash all or any portion of such holder’s 2022 Notes on
the date notified in writing by the Company in accordance with the indenture for the 2022 Notes. The Company believes that the likelihood of
occurrence of events considered a fundamental change is remote. The 2022 Notes are generally not redeemable prior to the maturity date of
September 15, 2022, except that the Company may, at its option, redeem all but not part of the 2022 Notes in accordance with the indenture for the 2022
Notes if the Company has or will become obligated to pay holders additional amount due to certain changes in tax law of the relevant jurisdiction.
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In August 2019, the Company notified holders of the 2022 Notes of their rights under the relating indenture to require the Company to purchase
all of or portion of such notes on September 15, 2019, which we refer to as the Put Right. In September 2019, as a result of exercise of aforementioned
early redemption right, the Company redeemed US$924 million (RMB6.6 billion) aggregate principal amount of the 2022 Notes as requested by the
holders. The remaining 2022 Notes were reclassified as long-term debt as of December 31, 2019 and 2020 as it may not be redeemed or mature within
one year.
The Company assessed the 2020 Notes, 2025 Notes and 2022 Notes (collectively as “Notes”), the 2015 Purchased Call Option (the “Purchased
Call Options”) and the 2015 Sold Warrants (the “Sold Warrants”) under ASC 815 and concluded that:
•
The Notes, the Purchased Call Options and the Sold Warrants (1) do not entail the same risks; and (2) have a valid business purpose and economic
need for structuring the transactions separately. Therefore, the offering of the Notes, the Purchased Call Options and Sold Warrants transactions
should be accounted separately;
•
The repurchase option is considered clearly and closely related to its debt host and does not meet the requirement for bifurcation;
•
•
Since the conversion option is considered indexed to the Company’s own stock, bifurcation of conversion option from the Notes is not required as
the scope exception prescribed in ASC 815-10-15-74 is met;
There was no BCF attributable to the Notes as the set conversion prices for the Notes were greater than the respective fair values of the ordinary
share price at date of issuances;
Therefore, the Company has accounted for the respective Notes as a single instrument as a long-term debt. The debt issuance cost was recorded as
reduction to the long-term debts and are amortised as interest expenses using the effective interest method. The value of the Notes are measured by the
cash received. The Purchased Call Options and Sold Warrants are accounted for within stockholders’ equity.
Description of Booking and Hillhouse Notes
On August 7, 2014, the Company issued Convertible Senior Note (the “2019 Booking Note”) at an aggregate principal amount of US$500 million
to an indirect subsidiary of the Booking Company. The Booking 2019 Note was due on August 7, 2019 and bears interest of 1% per annum, which will
be paid semi-annually beginning on February 7, 2015. The Booking 2019 Note was convertible into the Company’s ADSs with an initial conversion
price of approximately US$81.36 per ADS. In 2019, the 2019 Booking Notes with principal amount of US$500 million (RMB3.4 billion) were all
redeemed for cash.
On May 26, 2015, the Company issued Convertible Senior Note (the “2020 Booking Note”) at an aggregate principal amount of US$250 million
to an indirect subsidiary of the Booking Company. The Booking 2020 Note was due on May 29, 2020 and bears interest of 1% per annum, which was
paid semi-annually beginning on November 29, 2016. The Booking 2020 Note will be convertible into the Company’s ADSs with an initial conversion
price of approximately US$104.27 per ADS. In 2020, the 2020 Booking Notes with principal amount of US$250 million (RMB1.8 billion) were
redeemed for cash.
On December 10, 2015, the Company issued Convertible Senior Notes at an aggregate principal amount of US$1.0 billion to an indirect
subsidiary of the Booking Company and two affiliates of Hillhouse (the “2025 Booking and Hillhouse Notes”). The 2025 Booking and Hillhouse Notes
are due on December 11, 2025 and bear interest of 2% per annum, which would be paid semi-annually beginning on June 11, 2016. The 2025 Booking
and Hillhouse Notes will be convertible into the Company’s ADSs with an initial conversion price of approximately US$68.46 per ADS.
Absent a fundamental change (as defined in the indenture for the 2025 Booking and Hillhouse Notes), each holder of the 2025 Booking and
Hillhouse Notes has a right at such holder’s option to require the Company to repurchase for cash all or any portion of such holder’s 2025 Booking and
Hillhouse Notes beginning on December 11, 2021, as a result the 2025 Booking and Hillhouse Notes were reclassified from long-term to short-term as
of December 31, 2020.
On September 12, 2016, the Company issued US$25 million Convertible Senior Note to an indirect subsidiary of the Booking Company (the
“2022 Booking Note”). The 2022 Booking Note is due on September 15, 2022 and bears interest of 1.25% per annum, which will be paid semi-annually
beginning on March 15, 2017. The 2022 Booking Note will be convertible into the Company’s ADSs with an initial conversion price of approximately
US$65.49 per ADS.
The Company has accounted for the above notes as a single instrument. The value of the above notes is measured by the cash received. The
Company recorded the interest expenses according to its annual interest rate. There was no BCF attributable to the above notes as the set conversion
price for the above notes was greater than the fair value of the ADS price at date of issuance.
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Description of Exchangeable Senior Notes
On July 13, 2020, the Company issued exchangeable senior notes due 2027 (the “Exchangeable Senior Notes”) at an aggregate principal amount
of US$500 million. The Exchangeable Senior Notes are due on July 1, 2027 and bears interest of 1.5% per annum, which will be paid semi-annually
beginning on January 1, 2021. The Exchangeable Senior Notes may be converted, at an initial conversion rate of 24.78 Huazhu ADSs per US$1,000
principal amount of the Notes (which represents an initial conversion price of US$40.36 per Huazhu ADS) at each holder’s option. The Company
accounts for and measures the Exchangeable Senior Notes in its entirety at fair value. As of December 31, 2020, the fair value of the Exchangeable
Senior Notes amounted to RMB4.2 billion (US$651 million). For the year ended December 31, 2020, the change of its fair value was RMB1.0 billion
(US$151 million) which was recorded in “Other income/ (expense)”.
Long-term Loans from Commercial Banks
As of December 31, 2020, the Company obtained long-term bank borrowings of RMB17.8 billion (US$2.7 billion) in aggregate, of which
RMB1.3 billion (US$193 million) were collateralized by short-term investments, long-term investments and properties of the Company. The weighted
average interest rate for the outstanding borrowings was approximately 1.68%. The Company was in compliance with the applicable financial covenants
under those lines of credit as of December 31, 2020.
Securitization Debt
As of December 31, 2020, securitization debt represents the revolving debt securities which are collateralized by the receivable related to financial
services. The revolving debt securities have the terms ranged from one year to two years with the annual interest rate from 4.50% to 5.00%.
18. REDEEMABLE NON-CONTROLLING INTERESTS
One of the Company’s subsidiaries issued redeemable preferred shares amounting to RMB1.1 billion to certain third party investors in 2019. The
preferred shares are redeemable at holder’s option if the subsidiary fails to complete a qualified IPO in a pre-agreed period of time since its issuance
with a redemption price measured by 10% interest per year. The preferred shares are therefore accounted for as redeemable non-controlling interests in
mezzanine equity and are accreted to the redemption value over the period starting from the issuance date. In 2020, the Company lost the control in the
subsidiary and the financial position and results of operations of the subsidiary was deconsolidated. A gain of RMB1.1 billion (approximately US$161
million) was recognized in the Other income/(expense) (Note 2) in connection with the deconsolidation.
For the years ended December 31, 2019 and 2020, the Company recognized accretion of RMB44 million and RMB40 million to the respective
redemption value of the preferred shares over the period starting from issuance date with a corresponding reduction to the retained earnings.
19. EARNINGS/(LOSSES) PER SHARE
Basic earnings/(losses) per share and diluted earnings per share were calculated as follows (RMB in millions, except for share and per share data):
Numerator:
Net income/(loss) attributable to Trip’s shareholders
Eliminate the dilutive effect of interest expense of convertible notes
Numerator for diluted earnings per share
Denominator:
Denominator for basic earnings per ordinary share
- weighted average ordinary shares outstanding
Dilutive effect of share options
Dilutive effect of convertible notes
Denominator for diluted earnings per ordinary share
Basic earnings/(losses) per ordinary share
Diluted earnings/(losses) per ordinary share
Basic earnings/(losses) per ADS
Diluted earnings/(losses) per ADS
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2018
2019
2020
1,112
—
1,112
7,011
373
7,384
(3,247)
—
(3,247)
68,403,426 70,983,996 75,111,026
—
2,521,197 1,976,959
— 7,283,059
—
70,924,623 80,244,014 75,111,026
(43.21)
98.78
16.25
15.67
2.03
1.96
92.02
12.35
11.50
(43.21)
(5.40)
(5.40)
Table of Contents
All the convertible senior notes had anti-dilutive impact and were excluded in the computation of diluted EPS in 2020. All the convertible senior
notes were included in the computation of diluted EPS in 2019. All the convertible senior notes had antidilutive impact and were excluded in the
computation of diluted EPS in 2018.
For the years ended December 31, 2018, 2019 and 2020, the Company had securities which could potentially dilute basic earnings per share in the
future, which were excluded from the computation of diluted earnings/(losses) per share as their effects would have been anti-dilutive. Such weighted
average numbers of ordinary shares outstanding are as following:
Convertible Notes
Outstanding weighted average stock options
20. COMMITMENTS AND CONTINGENCIES
Capital commitments
2019
2018
9,604,548
— 3,487,017
2,521,197 1,976,959 1,554,182
12,125,745 1,976,959 5,041,199
2020
As of December 31, 2020, the Company had outstanding capital commitments totaling RMB13 million, which consisted of capital expenditures of
property, equipment and software.
Deposit under guarantee arrangement
In connection with its air ticketing business, the Company is required by an affiliate of Civil Aviation Administration of China (“CAAC”) and
International Air Transport Association (“IATA”) to enter into guarantee arrangements and to pay deposits. The unused deposits are repaid at the end of
the guaranteed period on an annual basis. As of December 31, 2020, the total quota of the air tickets that the Company was entitled to issue was up to
RMB1.1 billion. The total amount of the deposit the Company paid was RMB146 million.
Based on the guarantee arrangements and historical experience, the maximum amount of the future payments of Company is approximately
RMB943 million which is the guaranteed amount of the air ticket that the Company could issue rather than a financial guarantee. The Company will be
liable to pay only when it issues the air tickets to its users and such payable is included in the accounts payable. Therefore, the Company believes the
guarantee arrangements do not constitute any contractual and constructive obligation of the Company and has not recorded any liability beyond the
amount of the tickets that have already been issued.
Contingencies
The Company is not currently a party to any pending material litigation or other legal proceeding or claims.
The Company is incorporated in the Cayman Islands and is considered as a foreign entity under PRC laws. Due to the restrictions on foreign
ownership of the air-ticketing, travel agency, advertising and internet content provision businesses, the Company conducts these businesses partly
through various VIEs. These VIEs hold the licenses and approvals that are essential for the Company’s business operations. In the opinion of the
Company’s PRC legal counsel, the current ownership structures and the contractual arrangements with these VIEs and their shareholders as well as the
operations of these VIEs are in compliance with all existing PRC laws, rules and regulations. However, there may be changes and other developments in
PRC laws and regulations. Accordingly, the Company cannot be assured that PRC government authorities will not take a view in the future contrary to
the opinion of the Company’s PRC legal counsel. If the current ownership structures of the Company and its contractual arrangements with VIEs were
found to be in violation of any existing or future PRC laws or regulations, the Company may be required to restructure its ownership structure and
operations in China to comply with changing and new PRC laws and regulations.
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21. GEOGRAPHIC INFORMATION
The following table presents revenue by geographic area, the Greater China and all other countries, based on the geographic location of its
websites for the year ended December 31, 2018, 2019 and 2020. No revenue result from an individual country other than the Greater China accounted
for more than 10% of revenue for the presented years.
Total Revenue
The Greater China
Others
22.
SUBSEQUENT EVENTS
2018
2019
2020
RMB (in millions)
28,064 31,256 17,019
3,040 4,460 1,308
31,104 35,716 18,327
The Company has evaluated the subsequent events through the date of issuance of the financial statements.
F-47
Registrar of Companies
Government Administration Building
133 Elgin Avenue
George Town
Grand Cayman
CTRIP.COM INTERNATIONAL, LTD. (ROC 97668) (the “Company”)
TAKE NOTICE that at the annual general meeting of the shareholders of the Company dated 25 October 2019, the following special resolutions were
passed:
THAT the name of the Company is changed from “CTRIP.COM INTERNATIONAL, LTD.” to “Trip.com Group Limited”.
Exhibit 1.1
/s/ Ruth Grizzel
Ruth Grizzel
Corporate Administrator
for and on behalf of
Maples Corporate Services Limited
Dated this 25th day of October 2019
THE COMPANIES LAW (2013 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SECOND AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION
OF
CTRIP.COM INTERNATIONAL, LTD.
ADOPTED BY SPECIAL RESOLUTION PASSED ON
21 December 2015
1. The name of the Company is Ctrip.com International, Ltd.
2. The Registered Office of the Company shall be at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman,
KY1-1104, Cayman Islands, or at such other place as the Directors may from time to time decide.
3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not
prohibited by the Companies Law (2013 Revision) or as the same may be revised from time to time, or any other law of the Cayman Islands.
4. The liability of each Member is limited to the amount from time to time unpaid on such Member’s Shares.
5. The authorised share capital of the Company is US$1,750,000 divided into 175,000,000 ordinary shares of a nominal or par value of US$0.01
each. The Company has the power to redeem or purchase any of its shares and to increase or reduce the said capital subject to the provisions of the
Companies Law (2013 Revision) and the Articles of Association and to issue any part of its capital, whether original, redeemed or increased with or
without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the
conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers
hereinbefore contained.
6. The Company has the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the
Cayman Islands and to be deregistered in the Cayman Islands.
7. Capitalised terms that are not defined in this Second Amended and Restated Memorandum of Association bear the same meaning as those given in the
Second Amended and Restated Articles of Association of the Company.
THE COMPANIES LAW (2013 REVISION)
OF THE CAYMAN ISLANDS
COMPANY LIMITED BY SHARES
SECOND AMENDED AND RESTATED ARTICLES OF ASSOCIATION
OF
CTRIP.COM INTERNATIONAL, LTD.
ADOPTED BY SPECIAL RESOLUTION PASSED ON
21 December 2015
1. In these Articles Table A in the Schedule to the Law does not apply and, unless there is something in the subject or context inconsistent therewith,
“Articles” means these Articles as originally framed or as from time to time altered by Special Resolution.
“Auditors” means the persons for the time being performing the duties of auditors of the Company (if any).
“Board” means the Board of the Directors as defined in Article 80.
“the Chairman” shall mean the Chairman presiding at any meeting of members or of the Board.
“Company” means Ctrip.com International, Ltd.
“debenture” means debenture stock, mortgages, bonds and any other such securities of the Company whether constituting a charge on the assets
of the Company or not.
“Directors” means the directors for the time being of the Company.
“dividend” includes interim bonuses.
“Electronic Record” has the same meaning as in the Electronic Transactions Law (2003 Revision).
“the Law” shall mean the Companies Law (2013 Revision) of the Cayman Islands and any amendments thereto or re-enactments thereof for the
time being in force and includes every other law incorporated therewith or substituted therefore.
“Member” shall bear the same meaning as in the Law.
“Memorandum” means the memorandum of association of the Company as originally framed or as from time to time altered by Special
Resolution.
“month” means calendar month.
“Ordinary Resolution” means a resolution passed by a simple majority of the Members as, being entitled to do so, vote in person or, where
proxies are allowed, by proxy at a general meeting, and includes a unanimous written resolution. In computing the majority when a poll is demanded
regard shall be had to the number of votes to which each Member is entitled by the Articles.
“paid-up” means paid-up and/or credited as paid-up.
“principal register” shall mean the register of members of the Company maintained at such place within or outside the Cayman Islands as the
Board shall determine from time to time.
“Register of Members” means the register maintained in accordance with the Law and includes (except where otherwise stated) any duplicate
Register of Members.
“Registered Office” means the registered office for the time being of the Company.
“Seal” means the common seal of the Company and includes every duplicate seal.
“Secretary” includes an Assistant Secretary and any person appointed to perform the duties of Secretary of the Company.
“Share” and “Shares” means a share or shares in the Company and includes a fraction of a share.
“Share Premium Account” means the account of the Company which the Company is required by the Law to maintain, to which all premiums
over nominal or par value received by the Company in respect of issues of Shares from time to time are credited.
“Special Resolution” has the same meaning as in the Law, and includes a unanimous written resolution.
“written” and “in writing” include all modes of representing or reproducing words in visible form, including in the form of an Electronic Record.
Words importing the singular number include the plural number and vice-versa.
Words importing the masculine gender include the feminine gender.
Words importing persons include corporations.
References to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or
replaced from time to time.
Any phrase introduced by the terms “including”, “include”, “in particular” or any similar expression shall be construed as illustrative and shall not
limit the sense of the words preceding those terms.
2
Headings are inserted for reference only and shall be ignored in construing these Articles.
2. The business of the Company may be commenced as soon after incorporation as the Directors shall see fit.
3. The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of
the Company including the expenses of registration.
4. The authorised share capital of the Company is US$1,750,000 divided into 175,000,000 ordinary shares of a nominal or par value of US$0.01 each.
SHARE CAPITAL
ISSUE OF SHARES
5. Subject to the relevant provisions, if any, in the Memorandum and to any direction that may be given by the Company in general meeting and without
prejudice to any special rights previously conferred on the holders of existing Shares, the Directors may allot, issue, grant options over or otherwise
dispose of Shares of the Company (including fractions of a Share) with or without preferred, deferred or other special rights or restrictions, whether with
regard to dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper. The Company
shall not issue Shares in bearer form.
REGISTER OF MEMBERS AND SHARE CERTIFICATES
6. The Company shall maintain a register of its Members and every person whose name is entered as a Member in the register of Members shall be
entitled without payment to receive within two months after allotment or lodgement of transfer (or within such other period as the conditions of issue
shall provide) one certificate for all his Shares or several certificates each for one or more of his Shares upon payment of fifty cents (US$0.50) for every
certificate after the first or such less sum as the Directors shall from time to time determine provided that in respect of a Share or Shares held jointly by
several persons the Company shall not be bound to issue more than one certificate and delivery of a certificate for a Share to one of the several joint
holders shall be sufficient delivery to all such holders.
7. The Board shall cause to be kept at such place within or outside the Cayman Islands as they deem fit a principal register of the Members and there
shall be entered therein the particulars of the Members and the Shares issued to each of them and other particulars required under the Law of the
Cayman Islands.
8. If the Board considers it necessary or appropriate, the Company may establish and maintain a branch register or registers of Members at such location
or locations within or outside the Cayman Islands as the Board thinks fit. The principal register and the branch register(s) shall together be treated as the
register for the purposes of these Articles.
3
9. The Board may, in its absolute discretion, at any time transfer any Share upon the principal register to any branch register or any Share on any branch
register to the principal register or any other branch register.
10. The Company shall as soon as practicable and on a regular basis record in the principal register all transfers of Shares effected on any branch register
and shall at all times maintain the principal register in such manner to show at all times the Members for the time being and the Shares respectively held
by them, in all respects in accordance with the Law.
11. The register may be closed at such times and for such periods as the Board may from time to time determine, either generally or in respect of any
class of Shares, provided that the register shall not be closed for more than 30 days in any year (or such longer period as the members may by ordinary
resolution determine provided that such period shall not be extended beyond 60 days in any year).
12. Every certificate for Shares or debentures or representing any other form of security of the Company shall be issued under the seal of the Company,
which shall only be affixed with the authority of the Board.
13. Every Share certificate shall specify the number of Shares in respect of which it is issued and the amount paid thereon or the fact that they are fully
paid, as the case may be, and may otherwise be in such form as the Board may from time to time prescribe.
14. The Company shall not be bound to register more than four persons as joint holders of any Share. If any Shares shall stand in the names of two or
more persons, the person first named in the register shall be deemed the sole holder thereof as regards service of notices and, subject to the provisions of
these Articles, all or any other matters connected with the Company, except the transfer of the Share.
15. If a Share certificate is defaced, lost or destroyed, it may be replaced on payment of such reasonable fee, if any, as the Board may from time to time
prescribe and on such terms and conditions, if any, as to publication of notices, evidence and indemnity, as the Board thinks fit and where it is defaced or
worn out, after delivery up of the old certificate to the Company for cancellation.
TRANSFER OF SHARES
16. The instrument of transfer of any Share shall be in writing and shall be executed by or on behalf of the transferor and the transferor shall be deemed
to remain the holder of a Share until the name of the transferee is entered in the register in respect thereof.
17. The Directors may in their absolute discretion decline to register any transfer of Shares without assigning any reason therefor. If the Directors refuse
to register a transfer they shall notify the transferee within two months of such refusal.
4
18. The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine, provided always
that such registration shall not be suspended for more than forty-five days in any year.
REDEEMABLE SHARES
19. (a) Subject to the provisions of the Law and the Memorandum, Shares may be issued on the terms that they are, or at the option of the Company or
the holder are, to be redeemed on such terms and in such manner as the Company, before the issue of the Shares, may by Special Resolution determine.
(b) Subject to the provisions of the Law and the Memorandum, the Company may purchase its own Shares (including fractions of a Share),
including any redeemable Shares, provided that the manner of purchase has first been authorised by the Company in a general meeting and may make
payment therefor in any manner authorised by the Law, including out of capital.
VARIATION OF RIGHTS OF SHARES
20. If at any time the Share capital of the Company is divided into different classes of Shares, the rights attached to any class (unless otherwise provided
by the terms of issue of the Shares of that class) may, whether or not the Company is being wound-up and except where these Articles or the Law
impose any stricter quorum, voting or procedural requirements in regard to the variation of rights attached to a specific class, be varied with the consent
in writing of the holders of 75% of the issued Shares of that class, or with the sanction of a Special Resolution passed at a general meeting of the holders
of the Shares of that class.
21. The provisions of these Articles relating to general meetings shall apply to every such general meeting of the holders of one class of Shares except
that the necessary quorum shall be one person holding or representing by proxy at least one-third of the issued Shares of the class and that any holder of
Shares of the class present in person or by proxy may demand a poll.
22. For purposes of this provision any particular issue of Shares not carrying the same rights (whether as to rate of dividend, redemption or otherwise) as
any other Shares of the time being in issue, shall be deemed to constitute a separate class of Shares. 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 therewith.
COMMISSION ON SALE OF SHARES
23. The Company may in so far as the Law from time to time permits pay a commission to any person in consideration of his subscribing or agreeing to
subscribe whether absolutely or conditionally for any Shares of the Company. Such commissions may be satisfied by the payment of cash or the
lodgement of fully or partly paid-up Shares or partly in one way and partly in the other. The Company may also on any issue of Shares pay such
brokerage as may be lawful.
5
NOTICES OF RECORD DATE
24. In the event that the Company shall propose at any time:
(a) to declare any dividend or distribution upon its Shares, whether in cash, property, Shares or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription pro rata to the holders of any class or series of its Shares any additional shares of Shares of any class or series or other
rights;
(c) to effect any reclassification or recapitalisation of its Shares outstanding involving a change in the Shares; or
(d) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up:
(i) at least 20 days’ prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights
(and specifying the date on which the holders of Shares shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in
(c) and (d) above; and
(ii) in the case of the matters referred to in (c) and (d) above, at least 20 days’ prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Shares shall be entitled to exchange their Shares for securities or other property deliverable upon
the occurrence of such event).
25. The Company shall not be bound by or compelled to recognise in any way (even when notified) any equitable, contingent, future, or partial interest
in any Share, or (except only as is otherwise provided by these Articles or the Law) any other rights in respect of any Share other than an absolute right
to the entirety thereof in the registered holder.
NON-RECOGNITION OF TRUSTS
LIEN ON SHARES
26. The Company shall have a first and paramount lien on all Shares (whether fully paid-up or not) registered in the name of a Member (whether solely
or jointly with others) for all debts, liabilities or engagements to or with the Company (whether presently payable or not) by such Member or his estate,
either alone or jointly with any other person, whether a Member or not, but the Directors may at any time declare any Share to be wholly or in part
exempt from the provisions of this Article. The registration of a transfer of any such Share shall operate as a waiver of the Company’s lien thereon. The
Company’s lien on a Share shall also extend to any amount payable in respect of that Share.
6
27. The Company may sell, in such manner as the Directors think fit, any Shares on which the Company has a lien, if a sum in respect of which the lien
exists is presently payable, and is not paid within fourteen days after notice has been given to the holder of the Shares or to the person entitled to it in
consequence of the death or bankruptcy of the holder, demanding payment and stating that if the notice is not complied with the Shares may be sold.
28. To give effect to any such sale, the Directors may authorise any person to execute an instrument of transfer of the Shares sold to, or in accordance
with the directions of, the purchaser. The purchaser or his nominee shall be registered as the holder of the Shares comprised in any such transfer, and he
shall not be bound to see to the application of the purchase money, nor shall his title to the Shares be affected by any irregularity or invalidity in the sale
or the exercise of the Company’s power of sale under these Articles.
29. The net proceeds of such sale after payment of such costs, shall be applied in payment of such part of the amount in respect of which the lien exists
as is presently payable and any residue, shall (subject to a like lien for sums not presently payable as existed upon the Shares before the sale) be paid to
the person entitled to the Shares at the date of the sale.
CALL ON SHARES
30. (a) The Directors may from time to time make calls upon the Members in respect of any monies unpaid on their Shares (whether on account of the
nominal value of the Shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed terms, provided
that no call shall be payable at less than one month from the date fixed for the payment of the last preceding call, and each Member shall (subject to
receiving at least fourteen days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called
on the Shares. A call may be revoked or postponed as the Directors may determine. A call may be made payable by instalments.
(b) A call shall be deemed to have been made at the time when the resolution of the Directors authorising such call was passed.
(c) The joint holders of a Share shall be jointly and severally liable to pay all calls in respect thereof.
31. If a sum called in respect of a Share is not paid before or on a day appointed for payment thereof, the persons from whom the sum is due shall pay
interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate not exceeding ten per cent per annum as the
Directors may determine, but the Directors shall be at liberty to waive payment of such interest either wholly or in part.
32. Any sum which by the terms of issue of a Share becomes payable on allotment or at any fixed date, whether on account of the nominal value of the
Share or by way of premium or otherwise, shall for the purposes of these Articles be deemed to be a call duly made, notified and payable on the date on
which by the terms of issue the same becomes payable, and in the case of non-payment all the relevant provisions of these Articles as to payment of
interest forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified.
7
33. The Directors may, on the issue of Shares, differentiate between the holders as to the amount of calls or interest to be paid and the times of payment.
34. (a) The Directors may, if they think fit, receive from any Member willing to advance the same, all or any part of the monies uncalled and unpaid
upon any Shares held by him, and upon all or any of the monies so advanced may (until the same would but for such advances, become payable) pay
interest at such rate not exceeding (unless the Company in general meeting shall otherwise direct) seven per cent per annum, as may be agreed upon
between the Directors and the Member paying such sum in advance.
(b) No such sum paid in advance of calls shall entitle the Member paying such sum to any portion of a dividend declared in respect of any period
prior to the date upon which such sum would, but for such payment, become presently payable.
FORFEITURE OF SHARES
35. (a) If a Member fails to pay any call or instalment of a call or to make any payment required by the terms of issue on the day appointed for payment
thereof, the Directors may, at any time thereafter during such time as any part of the call, instalment or payment remains unpaid, give notice requiring
payment of any part of the call, instalment or payment that is unpaid, together with any interest which may have accrued and all expenses that have been
incurred by the Company by reason of such non-payment. Such notice shall name a day (not earlier than the expiration of fourteen days from the date of
giving of the notice) on or before which the payment required by the notice is to be made, and shall state that, in the event of non-payment at or before
the time appointed the Shares in respect of which such notice was given will be liable to be forfeited.
(b) If the requirements of any such notice as aforesaid are not complied with, any Share in respect of which the notice has been given may at any
time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall
include all dividends declared in respect of the forfeited Share and not actually paid before the forfeiture.
(c) A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a
sale or disposition, the forfeiture may be cancelled on such terms as the Directors see fit.
36. A person whose Shares have been forfeited shall cease to be a Member in respect of the forfeited Shares, but shall, notwithstanding, remain liable to
pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the Shares together with interest
thereon, but his liability shall cease if and when the Company shall have received payment in full of all monies whenever payable in respect of the
Shares.
37. A certificate in writing under the hand of one Director or the Secretary of the Company that a Share in the Company has been duly forfeited on a
date stated in the declaration shall be conclusive evidence of the fact therein stated as against all persons claiming to be entitled to the Share. The
Company may receive the consideration given for the Share on any sale or disposition thereof and may execute a transfer of the Share in favour of the
person to whom the Share is sold or disposed of and he shall thereupon be registered as the holder of the Share and shall not be bound to see to the
application of the purchase money, if any, nor shall his title to the Share be affected by any irregularity or invalidity in the proceedings in reference to
the forfeiture, sale or disposal of the Share.
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38. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes
payable at a fixed time, whether on account of the nominal value of the Share or by way of premium as if the same had been payable by virtue of a call
duly made and notified.
39. The Company shall be entitled to charge a fee not exceeding one dollar (US$1.00) on the registration of every probate, letter of administration,
certificate of death or marriage, power of attorney, or other instrument.
REGISTRATION OF EMPOWERING INSTRUMENTS
TRANSMISSION OF SHARES
40. In case of the death of a Member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the
deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the Shares, but nothing
herein contained shall release the estate of any such deceased holder from any liability in respect of any Shares which had been held by him solely or
jointly with other persons.
41. (a) Any person becoming entitled to a Share in consequence of the death or bankruptcy or liquidation or dissolution of a Member (or in any other
way than by transfer) may, upon such evidence being produced as may from time to time be required by the Directors and subject as hereinafter
provided, elect either to be registered himself as holder of the Share or to make such transfer of the Share to such other person nominated by him as the
deceased or bankrupt person could have made and to have such person registered as the transferee thereof, but the Directors shall, in either case, have
the same right to decline or suspend registration as they would have had in the case of a transfer of the Share by that Member before his death or
bankruptcy as the case may be.
(b) If the person so becoming entitled shall elect to be registered himself as holder he shall deliver or send to the Company a notice in writing
signed by him stating that he so elects.
42. A person becoming entitled to a Share by reason of the death or bankruptcy or liquidation or dissolution of the holder (or in any other case than by
transfer) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the Share, except
that he shall not, before being registered as a Member in respect of the Share, be entitled in respect of it to exercise any right conferred by membership
in relation to meetings of the Company, provided, however, that the Directors may at any time give notice requiring any such person to elect either to be
registered himself or to transfer the Share, and if the notice is not complied with within ninety days, the Directors may thereafter withhold payment of
all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with.
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AMENDMENT OF MEMORANDUM OF ASSOCIATION,
ALTERATION OF CAPITAL & CHANGE OF LOCATION OF REGISTERED OFFICE
43. (a) The Company may by Ordinary Resolution:
(i) increase the share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as
the Company in general meeting may determine;
(ii) consolidate and divide all or any of its share capital into Shares of larger amount than its existing Shares;
(iii) by subdivision of its existing Shares or any of them divide the whole or any part of its share capital into Shares of smaller amount than
is fixed by the Memorandum of Association or into Shares without par value;
(iv) cancel any Shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any person.
(b) All new Shares created in accordance with the provisions of the preceding Article shall be subject to the same provisions of the Articles with
reference to the payment of calls, liens, transfer, transmission, forfeiture and otherwise as the Shares in the original share capital.
(c) Subject to the provisions of the Statue and the provisions of these Articles as regards the matters to be dealt with by Ordinary Resolution , the
Company may by Special Resolution:
(i) change its name;
(ii) alter or add to these Articles;
(iii) alter or add to the Memorandum with respect to any objects, powers or other matters specified therein; and reduce its share capital and
any capital redemption reserve fund.
44. Subject to the provisions of the Law, the Company may by resolution of the Directors change the location of its Registered Office.
CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE
45. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled
to receive payment of any dividend, or in order to make a determination of Members for any other proper purpose, the Directors of the Company may
provide that the register of Members shall be closed for transfers for a stated period but not to exceed in any case forty days. If the register of Members
shall be so closed for the purpose of determining Members entitled to notice of or to vote at a meeting of Members, such register shall be so closed for at
least ten days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of Members.
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46. In lieu of or apart from closing the register of Members, the Directors may fix in advance a date as the record date for any such determination of
Members entitled to notice of or to vote at a meeting of the Members and for the purpose of determining the Members entitled to receive payment of any
dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such
determination.
47. If the register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting
of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution
of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a
determination of Members entitled to vote at any meeting of Members has been made as provided in this section, such determination shall apply to any
adjournment thereof.
GENERAL MEETING
48. All general meetings other than annual general meetings shall be called extraordinary general meetings.
49. (a) The Company shall, if required by the Law, in each year hold a general meeting as its annual general meeting and shall specify the meeting as
such in the notices calling it. The annual general meeting shall be held at such time and place as the Directors shall appoint and if no other time and
place is prescribed by them, it shall be held at the Registered Office on the second Wednesday in December of each year at ten o’clock in the morning.
(b) At these meetings the report of the Directors (if any) shall be presented.
(c) The Company may hold an annual general meeting but shall not (unless required by Law) be obliged to hold an annual general meeting.
50. (a) The Directors may call general meetings, and they shall on a Members requisition forthwith proceed to convene an extraordinary general meeting
of the Company.
(b) A Members requisition is a requisition of Members of the Company holding at the date of deposit of the requisition not less than ten per cent.
in par value of the capital of the Company as at that date carries the right of voting at general meetings of the Company.
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(c) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may
consist of several documents in like form each signed by one or more requisitionists.
(d) If the Directors do not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting to be
held within a further twenty-one days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may
themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the
second said twenty-one days.
(e) A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general
meetings are to be convened by Directors.
NOTICE OF GENERAL MEETINGS
51. At least seven days’ notice shall be given for any general meeting. Every notice shall be exclusive of the day on which it is given or deemed to be
given and of the day for which it is given and shall specify the place, the day and the hour of the meeting and the general nature of the business and shall
be given in the manner hereinafter mentioned or in such other manner if any as may be prescribed by the Company, provided that a general meeting of
the Company shall, whether or not the notice specified in this regulation has been given and whether or not the provisions of Articles regarding general
meetings have been complied with, be deemed to have been duly convened if it is so agreed:
(a) in the case of an annual general meeting by all the Members (or their proxies) entitled to attend and vote thereat; and
(b) in the case of an extraordinary general meeting by a majority in number of the Members (or their proxies) having a right to attend and vote at
the meeting, being a majority together holding not less than ninety-five per cent in par value of the Shares giving that right.
52. The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by any person entitled to receive notice shall
not invalidate the proceedings of that meeting.
PROCEEDINGS AT GENERAL MEETINGS
53. For all purposes the quorum for a general meeting shall be two Members present in person or by proxy or corporate representative provided always
that if the Company has only one member of record the quorum shall be that one member present in person or by proxy; provided, however, that in no
case shall such quorum be less than 33 1 / 3 % of the outstanding voting shares in the capital of the Company. No business (except the appointment of a
Chairman of the meeting) shall be transacted at any general meeting unless the requisite quorum shall be present at the commencement of the business.
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54. A person may participate at a general meeting by conference telephone or other communications equipment by means of which all the persons
participating in the meeting can communicate with each other. Participation by a person in a general meeting in this manner is treated as presence in
person at that meeting.
55. A resolution (including a Special Resolution) in writing (in one or more counterparts) signed by all Members for the time being entitled to receive
notice of and to attend and vote at general meetings (or, being corporations, signed by their duly authorised representatives) shall be as valid and
effective as if the resolution had been passed at a general meeting of the Company duly convened and held.
56. If a quorum is not present within half an hour from the time appointed for the meeting or if during such a meeting a quorum ceases to be present, the
meeting, if convened upon the requisition of Members, shall be dissolved and in any other case it shall stand adjourned to the same day in the next week
at the same time and place or to such other day, time or such other place as the Directors may determine, and if at the adjourned meeting a quorum is not
present within half an hour from the time appointed for the meeting, the Members present shall be a quorum.
57. The person chairing the meeting, if any, of the Board of Directors shall preside as Chairman at every general meeting of the Company, or if there is
no such Chairman, or if he shall not be present within fifteen minutes after the time appointed for the holding of the meeting, or is unwilling to act, the
Directors present shall elect one of their number to be Chairman of the meeting.
58. If no Director is willing to act as Chairman or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the
Members present shall choose one of their number to be Chairman of the meeting.
59. The Chairman may, with the consent of a meeting at which a quorum is present, (and shall if so directed by the meeting), adjourn the meeting from
time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting
from which the adjournment took place. When a general meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting; otherwise it shall not be necessary to give any such notice.
60. A resolution put to the vote of the meeting shall be decided on a show of hands unless before or on the declaration of the result of, the show of
hands, the Chairman demands a poll, or any other Member or Members collectively present in person or by proxy and holding at least ten per cent. in
par value of the Shares giving a right to attend and vote at the meeting demand a poll.
61. Unless a poll is duly demanded a declaration by the Chairman that a resolution has been carried, or carried unanimously, or by a particular majority,
or lost, or not carried by a particular majority, an entry to that effect in the minutes of the proceedings of the meeting shall be conclusive evidence of that
fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.
62. The demand for a poll may be withdrawn.
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63. Unless a poll is duly demanded, on the election of a Chairman or on a question of adjournment, a poll shall be taken as the Chairman directs and the
result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded.
64. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman shall be entitled to a second or casting vote.
65. A poll demanded on the election of a Chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question
shall be taken at such time as the Chairman of the general meeting directs, and any business other than that upon which a poll has been demanded or is
contingent thereon may proceed pending the taking of the poll.
VOTES OF MEMBERS
66. Except as otherwise required by law or as set forth herein, the holder of each Share issued and outstanding shall have one vote for each Share held
by such holder.
67. In the case of joint holders of record the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of
the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of Members.
68. A Member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show
of hands or on a poll, by his committee, receiver, curator bonis, or other person in the nature of a committee, receiver or curator bonis appointed by that
court, and any such committee, receiver, curator bonis or other persons may vote by proxy.
69. No Member shall be entitled to vote at any general meeting unless he is registered as a Member of the Company on the record date for such meeting
nor unless all calls or other sums presently payable by him in respect of Shares in the Company have been paid.
70. No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected
to is given or tendered and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall
be referred to the Chairman of the general meeting whose decision shall be final and conclusive.
71. On a poll or on a show of hands votes may be given either personally or by proxy.
72. The instrument appointing a proxy shall be in writing and shall be executed under the hand of the appointor or of his attorney duly authorised in
writing, or, if the appointor is a corporation under the hand of an officer or attorney duly authorised for that purpose. A proxy need not be a Member of
the Company.
PROXIES
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73. The instrument appointing a proxy shall be deposited at the Registered Office or at such other place as is specified for that purpose in the notice
convening the meeting, or in any instrument of proxy sent out by the Company:
(a) not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to
vote; or
(b) in the case of a poll taken more than 48 hours after it is demanded, be deposited as aforesaid after the poll has been demanded and not less than
24 hours before the time appointed for the taking of the poll; and
(c) where the poll is not taken forthwith but is taken not more than 48 hours after it was demanded be delivered at the meeting at which the poll
was demanded to the Chairman or to the secretary or to any director;
provided that the Directors may in the notice convening the meeting, or in an instrument of proxy sent out by the Company, direct that the instrument
appointing a proxy may be deposited (no later than the time for holding the meeting or adjourned meeting) at the Registered Office or at such other
place as is specified for that purpose in the notice convening the meeting, or in any instrument of proxy sent out by the Company. The Chairman may in
any event at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited. An instrument of proxy that is not deposited
in the manner permitted shall be invalid.
74. The instrument appointing a proxy may be in any usual or common form and may be expressed to be for a particular meeting or any adjournment
thereof or generally until revoked. An instrument appointing a proxy shall be deemed to include the power to demand or join or concur in demanding a
poll.
75. Votes given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal or
revocation of the proxy or of the authority under which the proxy was executed, or the transfer of the Share in respect of which the proxy is given unless
notice in writing of such death, insanity, revocation or transfer was received by the Company at the Registered Office before the commencement of the
general meeting, or adjourned meeting at which it is sought to use the proxy.
76. Any corporation or other non-natural person which is a Member may in accordance with its constitutional documents, or in the absence of such
provision by resolution of its Directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the
Company or of any class of Members, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he
represents as the corporation could exercise if it were an individual Member. A person entitled to more than one vote on a poll need not use all his votes
or cast all the votes he uses in the same way.
77. Shares in the Company that are beneficially owned by the Company shall not be voted, directly or indirectly, at any meeting and shall not be counted
in determining the total number of outstanding Shares at any given time.
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CORPORATE REPRESENTATIVES
78. Any corporation which is a Member of the Company may, by resolution of its directors or other governing body or by power of attorney, authorise
such person as it thinks fit to act as its representative at any meeting of the Company or of members of any class of Shares of the Company and the
person so authorised shall be entitled to exercise the same powers on behalf of the corporation which be represents as that corporation could exercise if
it were an individual member of the Company and where a corporation is so represented, it shall be treated as being present at any meeting in person.
CLEARING HOUSES
79. If a clearing house (or its nominee) is a member of the Company it may, by resolution of its directors or other governing body or by power of
attorney, authorise such person or persons as it thinks fit to act as its representative or representatives at any general meeting of the Company or at any
general meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the
number and class of Shares in respect of which each such person is so authorised. A person so authorised pursuant to this provision shall be entitled to
exercise the same powers on behalf of the clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it
were an individual member of the Company holding the number and class of Shares specified in such authorisation.
DIRECTORS
80. There shall be a Board of Directors (the “Board”) consisting of not more than nine (9) Directors, provided that the Company may from time to time
by Ordinary Resolution increase or decrease the number of Directors on the Board. Three (3) Directors (each, a “Founder Director”) shall be appointed
by the Company’s founders consisting of James Jiangzhang Liang, Neil Nanpeng Shen, Qi Ji and Min Fan (collectively, the “Founders”), subject to the
approval of a majority of the Independent Directors (as such term is defined under applicable NASDAQ marketplace rules). One (1) Director shall be
the then current Chief Executive Officer of the Company. The remaining Directors (each, an “Ordinary Director”) shall be elected or appointed by the
Board in accordance with Article 83 or by the Members at general meeting. The Members may by Ordinary Resolution appoint any person to be an
Ordinary Director, and may in like manner remove any Ordinary Director and appoint another person in his place.
81. [Intentionally omitted.]
82. Subject to Article 117, each Director shall hold office until the expiration of his term and until his successor shall have been elected and qualified
pursuant to Article 80.
83. Newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board resulting from death,
resignation, retirement, disqualification, removal from office or other cause may be filled by a majority vote of the Directors then in office even though
less than a quorum, or by a sole remaining director. In the event of any increase or decrease in the authorized number of Directors, each Director then
serving as such shall nevertheless continue as a Director until the expiration of his or her current term or his or her death, retirement, removal or
resignation. In the event of a vacancy in the Board, the remaining Directors may exercise the powers of the full Board until the vacancy is filled. No
decrease in the number of directors constituting the Board shall shorten the term of any incumbent Director.
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84. The remuneration to be paid to the Directors shall be such remuneration as the Directors shall determine. Such remuneration shall be deemed to
accrue from day to day. The Directors shall also be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to,
attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in
connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Directors from time to
time, or a combination partly of one such method and partly the other.
85. The Directors may by resolution award special remuneration to any Director of the Company undertaking any special work or services for, or
undertaking any special mission on behalf of, the Company other than his ordinary routine work as a Director. Any fees paid to a Director who is also
counsel or solicitor to the Company, or otherwise serves it in a professional capacity shall be in addition to his remuneration as a Director.
86. A Director or alternate Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction
with his office of Director for such period and on such terms as to remuneration and otherwise as the Directors may determine.
87. A Director or alternate Director may act by himself or his firm in a professional capacity for the Company and he or his firm shall be entitled to
remuneration for professional services as if he were not a Director or alternate Director.
88. A shareholding qualification for Directors may not be fixed by the Company in general meeting.
89. The Company shall keep at its Registered Office a register of Directors and officers containing their names and addresses and occupations and other
particulars required by the Law and shall send to the Registrar of Companies of the Cayman Islands a copy of such register and shall from time to time
notify to the Registrar of Companies of the Cayman Islands any change that takes place in relation to such Directors and officers as required by Law.
ALTERNATE DIRECTORS
90. A Director who expects to be unable to attend Directors’ Meetings because of absence, illness or otherwise may appoint any person to be an
alternate Director to act in his stead and such appointee whilst he holds office as an alternate Director shall, in the event of absence therefrom of his
appointor, be entitled to attend meetings of the Directors and to vote thereat and to do, in the place and stead of his appointor, any other act or thing
which his appointor is permitted or required to do by virtue of his being a Director as if the alternate Director were the appointor, other than appointment
of an alternate to himself, and he shall ipso facto vacate office if and when his appointor ceases to be a Director or removes the appointee from
office. Any appointment or removal under this Article shall be effected by notice in writing under the hand of the Director making the same.
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91. The appointment of an alternate Director shall determine on the happening of any event which, were he a Director, would cause him to vacate such
office or if his appointor ceases to be a Director.
92. An alternate Director shall be entitled to receive and waive (in lieu of his appointor) notices of meetings of the Directors and shall be entitled to
attend and vote as a Director and be counted in the quorum at any such meeting at which the Director appointing him is not personally present and
generally at such meeting to perform all the functions of his appointor as a Director and for the purposes of the proceedings at such meeting the
provisions of these Articles shall apply as if he (instead of his appointor) were a Director. If he shall be himself a Director or shall attend any such
meeting as an alternate for more than one Director, his voting rights shall be cumulative and he need not use all his votes or cast all the votes to uses in
the same way. To such extent as the Board may from time to time determine in relation to any committee of the Board, the foregoing provisions of this
Article shall also apply mutatis mutandis to any meeting of any such committee of which his appointor is a member. An alternate Director shall not, save
as aforesaid, have power to act as a Director nor shall he be deemed to be a Director for the purposes of these Articles.
93. An alternate Director shall be entitled to contract and be interested in and benefit from contracts, arrangements or transactions and to be repaid
expenses and to be indemnified to the same extent mutatis mutandis as if he were a Director, but he shall not be entitled to receive from the Company in
respect of his appointment as alternate Director any remuneration except only such part (if any) of the remuneration otherwise payable to his appointor
as such appointor may by notice in writing to the Company from time to time direct.
94. In addition to the foregoing provisions of this Article, a Director may be represented at any meeting of the Board (or of any committee of the Board)
by a proxy appointed by him, is which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. A proxy need
not himself be a Director and the provisions of Articles 72 to 77 shall apply mutatis mutandis to the appointment of proxies by Directors save that an
instrument appointing a proxy shall not become invalid after the expiration of twelve months from its date of execution but shall remain valid for such
period as the instrument shall provide or, if no such provision is made in the instrument, until revoked in writing and save also that a Director may
appoint any number of proxies although only one such proxy may attend in his stead at meetings of the Board).
POWERS AND DUTIES OF DIRECTORS
95. The business of the Company shall be managed by the Directors (or a sole Director if only one is appointed) who may pay all expenses incurred in
promoting, registering and setting up the Company, and may exercise all such powers of the Company as are not, from time to time by the Law, or by
these Articles, or such regulations, being not inconsistent with the aforesaid, as may be prescribed by the Company in general meeting required to be
exercised by the Company in general meeting, provided, however, that no regulations made by the Company in general meeting shall invalidate any
prior act of the Directors which would have been valid if that regulation had not been made.
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96. The Directors may from time to time and at any time by powers of attorney appoint any company, firm, person or body of persons, whether
nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purpose and with such powers, authorities and
discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they
may think fit, and any such powers of attorney may contain such provisions for the protection and convenience of persons dealing with any such
attorneys as the Directors may think fit and may also authorise any such attorney to delegate all or any of the powers, authorities and discretions vested
in him.
97. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for monies paid to the Company shall be
signed, drawn, accepted, endorsed or otherwise executed as the case may be in such manner as the Directors shall from time to time by resolution
determine.
98. The Directors shall cause minutes to be made in books provided for the purpose:
(a) of all appointments of officers made by the Directors;
(b) of the names of the Directors (including those represented thereat by an alternate or by proxy) present at each meeting of the Directors and of
any committee of the Directors;
(c) of all resolutions and proceedings at all meetings of the Company and of the Directors and of committees of Directors.
99. The Directors on behalf of the Company may pay a gratuity or pension or allowance on retirement to any Director who has held any other salaried
office or place of profit with the Company or to his widow or dependants and may make contributions to any fund and pay premiums for the purchase or
provision of any such gratuity, pension or allowance.
100. The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled
capital or any part thereof and to issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or
obligation of the Company or of any third party.
MANAGEMENT
101. (a) The Directors may from time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the
provisions contained in the three next following paragraphs shall be without prejudice to the general powers conferred by this paragraph.
(b) The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the
Company and may appoint any persons to be members of such committees or local boards or any managers or agents and may fix their remuneration.
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(c) The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers,
authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of
them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and
subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any
such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby.
(d) Any such delegates as aforesaid may be authorised by the Directors to subdelegate all or any of the powers, authorities, and discretions for the
time being vested in them.
INTERESTED DIRECTORS
102. No Director or proposed Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise
nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company with any person, company or partnership of or in
which any Director shall be a member or otherwise interested be capable on that account of being avoided, nor shall any Director so contracting or being
any member or so interested be liable to account to the Company for any profit so realised by any such contract or arrangement by reason only of such
Director holding that office or the fiduciary relationship, thereby established, provided that such Director shall, if his interest in such contract or
arrangement is material, declare the nature of his interest at the earliest meeting of the Board at which it is practicable for him to do so, either
specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a
specified description which may subsequently be made by the Company.
103. Any Director may continue to be or become a director, managing director, joint managing director, deputy managing director, executive director,
manager or other officer or member of any other company in which the Company may be interested and (unless otherwise agreed between the Company
and the Director) no such Director shall be liable to account to the Company or the members for any remuneration or other benefits received by him as a
director, managing director, joint managing director, deputy managing director, executive director, manager or other officer or member of any such other
company. The Directors may exercise the voting powers conferred by the shares in any other company held or owned by the Company, or exercisable by
them as directors of such other company in such manner in all respects as they think fit (including the exercise thereof in favour of any resolution
appointing themselves or any of them directors, managing directors, joint managing directors; deputy managing directors, executive directors, managers
or other officers of such company) and any Director may vote in favour of the exercise of such voting rights in the manner aforesaid notwithstanding
that he may be, or is about to be, appointed a director, managing director, joint managing director, deputy managing director, executive director, manager
or other officer of such a company, and that as such he is or may become interested in the exercise of such voting rights in the manner aforesaid.
104. A Director may hold any other office or place of profit with the Company (except that of Auditor) in conjunction with his office of Director for
such period and upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission,
participation in profit or otherwise) as the Board may determine, and such extra remuneration shall be in addition to any remuneration provided for by or
pursuant to any other Article.
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105. No person shall be disqualified from the office of Director or alternate Director or prevented by such office from contracting with the Company,
either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which
any Director or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting
or being so interested be liable to account to the Company for any profit realised by any such contract or transaction by reason of such Director holding
office or of the fiduciary relation thereby established. A Director (or his alternate Director in his absence) shall be at liberty to vote in respect of any
contract or transaction in which he is so interested as aforesaid provided however that the name of the interest of any Director or alternate Director in
any such contract or transaction shall be disclosed by him or the alternate Director appointed by him at or prior to its consideration and any vote thereon.
106. A general notice or disclosure to the Directors or otherwise contained in the minutes of a Meeting or a written resolution of the Directors or any
committee thereof that a Director or alternate Director is a shareholder of any specified firm or company and is to be regarded as interested in any
transaction with such firm or company shall be sufficient disclosure under Article 105 and after such general notice it shall not be necessary to give
special notice relating to any particular transaction.
MANAGING DIRECTORS
107. The Directors may, from time to time, appoint one or more of their body (but not an alternate Director) to the office of Managing Director for such
term and at such remuneration (whether by way of salary, or commission, or participation in profits, or partly in one way and partly in another) as they
may think fit but his appointment shall be subject to determination ipso facto if he ceases for any cause to be a Director and no alternate Director
appointed by him can act in his stead as a Director or Managing Director.
108. The Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with
such restrictions as they may think fit and either collaterally with or to the exclusion of their own powers and may from time to time revoke, withdraw,
alter or vary all or any of such powers.
PROCEEDINGS OF DIRECTORS
109. Except as otherwise provided by these Articles, the Directors shall meet together for the despatch of business, convening, adjourning and otherwise
regulating their meetings as they think fit. Questions arising at any meeting shall be decided by a majority of votes of the Directors and alternate
Directors present at a meeting at which there is a quorum, the vote of an alternate Director not being counted if his appointor be present at such
meeting. In case of an equality of votes, the Chairman shall have a second or casting vote.
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110. A Director or alternate Director may, and the Secretary on the requisition of a Director or alternate Director shall, at any time summon a meeting of
the Directors by at least two days’ notice in writing to every Director and alternate Director which notice shall set forth the general nature of the
business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held and, provided,
however, if notice is given in person, by cable, telex or telecopy the same shall be deemed to have been given on the day it is delivered to the Directors
or transmitting organisation as the case may be. The provisions of Article 51 shall apply mutatis mutandis with respect to notices of meetings of
Directors.
111. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors and unless so fixed shall be two, a Director
and his appointed alternate Director being considered only one person for this purpose, provided always that if there shall at any time be only a sole
Director the quorum shall be one. For the purposes of this Article an alternate Director or proxy appointed by a Director shall be counted in a quorum at
a meeting at which the Director appointing him is not present.
112. The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed
by or pursuant to these Articles as the necessary quorum of Directors or of summoning a general meeting of the Company, but for no other purpose.
113. The Directors may elect a Chairman of their Board and determine the period for which he is to hold office; but if no such Chairman is elected, or if
at any meeting the Chairman is not present within five minutes after the time appointed for holding the same, the Directors present may choose one of
their number to be Chairman of the meeting.
114. The Directors may delegate any of their powers to committees consisting of such member or members of the Board of Directors (including
Alternate Directors in the absence of their appointors) as they think fit; any committee so formed shall in the exercise of the powers so delegated
conform to any regulations that may be imposed on it by the Directors.
115. A committee may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the members
present, and in the case of an equality of votes the Chairman shall have a second or casting vote.
116. All acts done by any meeting of the Directors or of a committee of Directors (including any person acting as an alternate Director) shall,
notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or alternate Director, or that they or any
of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director or alternate Director as the case
may be.
Members of the Board of Directors or of any committee thereof may participate in a meeting of the Board or of such committee by means of
conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and
participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. A resolution in writing (in one or more
counterparts), signed by all the Directors for the time being or all the members of a committee of Directors (an alternate Director being entitled to sign
such resolution on behalf of his appointor) shall be as valid and effectual as if it had been passed at a meeting of the Directors or committee as the case
may be duly convened and held.
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117. The office of a Director shall be vacated:
(a) if he gives notice in writing to the Company that he resigns the office of Director; or
VACATION OF OFFICE OF DIRECTOR
(b) if he absents himself (without being represented by proxy or an alternate Director appointed by him) from three consecutive meetings of the
Board of Directors without special leave of absence from the Directors, and they pass a resolution that he has by reason of such absence vacated office;
or
(c) if he dies, becomes bankrupt or makes any arrangement or composition with his creditors generally; or
(d) if he is found to be or becomes of unsound mind.
APPOINTMENT AND REMOVAL OF DIRECTORS
118. The Directors of the Company may only be appointed as provided in Articles 80 and 83.
119. A Director of the Company shall only be removed by the Members who nominated and elected him.
PRESUMPTION OF ASSENT
120. A Director of the Company who is present at a meeting of the Board of Directors at which action on any Company matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be entered in the Minutes of the meeting or unless he shall file his written dissent
from such action with the person acting as the Chairman or Secretary of the meeting before the adjournment thereof or shall forward such dissent by
registered post to such person immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favour
of such action.
121. (a) The Company may, if the Directors so determine, have a Seal. The Seal shall only be used by the authority of the Directors or of a committee of
the Directors authorised by the Directors. Every instrument to which the Seal has been affixed shall be signed by at least one person who shall be either
a Director or some officer or other person appointed by the Directors for the purpose.
SEAL
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(b) The Company may have for use in any place or places outside the Cayman Islands a duplicate Seal or Seals each of which shall be a facsimile
of the Common Seal of the Company and, if the Directors so determine, with the addition on its face of the name of every place where it is to be used.
(c) A Director or officer, representative or attorney may without further authority of the Directors affix the Seal over his signature alone to any
document of the Company required to be authenticated by him under Seal or to be filed with the Registrar of Companies in the Cayman Islands or
elsewhere wheresoever.
122. The Company may have a President, a Secretary or Secretary-Treasurer appointed by the Directors. The Directors may also from time to time
appoint such other officers as they consider necessary, all for such terms, at such remuneration and to perform such duties, and subject to such
provisions as to disqualification and removal as the Directors from time to time prescribe.
OFFICERS
DIVIDENDS, DISTRIBUTIONS AND RESERVE
123. Subject to the Law, the Directors may from time to time declare dividends (including interim dividends) and distributions on Shares of the
Company outstanding and authorise payment of the same out of the funds of the Company lawfully available therefor.
124. The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at
the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in
the business of the Company.
125. No dividend or distribution shall be payable except out of the profits of the Company, realised or unrealised, or out of the Share Premium Account
or as otherwise permitted by the Law.
126. Subject to the rights of persons, if any, entitled to Shares with special rights as to dividends or distributions, if dividends or distributions are to be
declared on a class of Shares they shall be declared and paid according to the amounts paid or credited as paid on the Shares of such class outstanding on
the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a Share in
advance of calls shall be treated for the purpose of this Article as paid on the Share.
127. The Directors may deduct from any dividend or distribution payable to any Member all sums of money (if any) presently payable by him to the
Company on account of calls or otherwise.
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128. The Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid
up Shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such
distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution
of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed in
order to adjust the rights of all Members and may vest any such specific assets in trustees as may seem expedient to the Directors.
129. Any dividend, distribution, interest or other monies payable in cash in respect of Shares may be paid by cheque or warrant sent through the post
directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of Members or to such
person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the
person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in
respect of the Share held by them as joint holders.
130. No dividend or distribution shall bear interest against the Company.
131. Notwithstanding any other provisions of these Articles of the Company or the Law, the Board may fix any date as the record date for any dividend,
distribution, allotment or issue and such record date may be on or at any time before or after any date on which such dividend, distribution, allotment or
issue is declared, paid or made.
RECORD DATES
CAPITALISATION
132. The Company may capitalise any sum standing to the credit of any of the Company’s reserve accounts (including Share Premium Account and
capital redemption reserve fund) or any sum standing to the credit of profit and loss account or otherwise available for distribution and to appropriate
such sum to Members in the proportions in which such sum would have been divisible amongst them had the same been a distribution of profits by way
of dividend and to apply such sum on their behalf in paying up in full unissued Shares for allotment and distribution credited as fully paid up to and
amongst them in the proportion aforesaid. In such event the Directors shall do all acts and things required to give effect to such capitalisation, with full
power to the Directors to make such provisions as they think fit for the case of Shares becoming distributable in fractions (including provisions whereby
the benefit of fractional entitlements accrue to the Company rather than to the Members concerned). The Directors may authorise any person to enter on
behalf of all of the Members interested into an agreement with the Company providing for such capitalisation and matters incidental thereto and any
agreement made under such authority shall be effective and binding on all concerned.
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133. The Directors shall cause proper books of account to be kept with respect to:
(a) all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place;
BOOKS OF ACCOUNT
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Proper books shall not be deemed to be kept if there are not kept such books of account as are necessary to give a true and fair view of the state of the
Company’s affairs and to explain its transactions.
134. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations
the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors and no Member (not being a
Director) shall have any right of inspecting any account or book or document of the Company except as conferred by Law or authorised by the Directors
or by the Company in general meeting.
135. The Directors may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance
sheets, group accounts (if any) and such other reports and accounts as may be required by law.
136. The Board shall make the requisite annual returns and any other requisite filings in accordance with the Law.
ANNUAL RETURNS AND FILINGS
AUDIT
137. The Directors may appoint an Auditor of the Company who shall hold office until removed from office by a resolution of the Directors and may fix
his or their remuneration.
138. Every Auditor of the Company shall have a right of access at all times to the books and accounts and vouchers of the Company and shall be entitled
to require from the Directors and Officers of the Company such information and explanation as may be necessary for the performance of the duties of
the auditors.
139. Auditors shall, if so required by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general
meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an ordinary company, and at the
next extraordinary general meeting following their appointment in the case of a company which is registered with the Registrar of Companies as an
exempted company, and at any time during their term of office, upon request of the Directors or any general meeting of the Members.
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NOTICES
140. Notices shall be in writing and may be given by the Company to any Member either personally or by sending it by post, cable, telex, fax or e-mail
to him or to his address as shown in the register of Members (or where the notice is given by e-mail by sending it to the e-mail address provided by such
Member). Any notice, if posted from one country to another, is to be sent airmail.
141. (a) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, pre-paying and posting a letter
containing the notice, and shall be deemed to have been received on the fifth day (not including Saturdays or Sundays or public holidays) following the
day on which the notice was posted.
(b) Where a notice is sent by cable, telex, or fax, service of the notice shall be deemed to be effected by properly addressing, and sending such
notice and shall be deemed to have been received on the same day that it was transmitted.
(c) Where a notice is given by e-mail service shall be deemed to be effected by transmitting the e-mail to the e-mail address provided by the
intended recipient and shall be deemed to have been received on the same day that it was sent, and it shall not be necessary for the receipt of the e-mail
to be acknowledged by the recipient.
142. A notice may be given by the Company to the person or persons which the Company has been advised are entitled to a Share or Shares in
consequence of the death or bankruptcy of a Member in the same manner as other notices which are required to be given under these Articles and shall
be addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt, or by any like description at the address
supplied for that purpose by the persons claiming to be so entitled, or at the option of the Company by giving the notice in any manner in which the
same might have been given if the death or bankruptcy had not occurred.
143. Notice of every general meeting shall be given in any manner hereinbefore authorised to:
(a) every person shown as a Member in the register of Members on the record date for such meeting except that in the case of joint holders the
notice shall be sufficient if given to the joint holder first named in the register of Members; and
(b) every person upon whom the ownership of a Share devolves by reason of his being a legal personal representative or a trustee in bankruptcy of
a Member of record where the Member of record but for his death or bankruptcy would be entitled to receive notice of the meeting.
No other person shall be entitled to receive notices of general meetings.
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INFORMATION
144. No Member shall be entitled to require discovery of or any information in respect of any detail of the Company’s trading or any which is or may be
in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board
would not be in the interests of the Members of the Company to communicate to the public.
145. The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of
its Members including, without limitation, information contained in the register of Members and transfer books of the Company.
WINDING UP
146. Subject to Article 127, if the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any
other sanction required by the Law, divide amongst the Members in kind the whole or any part of the assets of the Company (whether they shall consist
of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the
Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such
trusts for the benefit of the Members as the liquidator, with the like sanction, shall think fit, but so that no Member shall be compelled to accept any
asset upon which there is a liability.
147. Every Director or officer of the Company shall be indemnified out of the assets of the Company against any liability incurred by him as a result of
any act or failure to act in carrying out his functions other than such liability (if any) that he may incur by his own wilful neglect or default. No such
Director or officer shall be liable to the Company for any loss or damage in carrying out his functions unless that liability arises through the wilful
neglect or default of such Director or officer.
INDEMNITY
148. Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31st December in each year and shall begin on January 1st
in each year.
FINANCIAL YEAR
149. Subject to the Law and to any quorum, voting or procedural requirements expressly imposed by these Articles in regard to the variation of rights
attached to a specific class of Shares of the Company, the Company may at any time and from time to time by Special Resolution change the name of
the Company or alter or amend these Articles or the Company’s Memorandum of Association, in whole or in part.
AMENDMENTS OF ARTICLES
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TRANSFER BY WAY OF CONTINUATION
150. If the Company is exempted as defined in the Law, it shall, subject to the provisions of the Law and with the approval of a Special Resolution, have
the power to register by way of continuation as a body corporate under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in
the Cayman Islands.
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Exhibit 4.34
TRIP.COM GROUP LIMITED
AND
THE BANK OF NEW YORK MELLON,
as Trustee
INDENTURE
Dated as of July 20, 2020
1.50% Exchangeable Senior Notes due 2027
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions
Section 1.02. References to Interest
ARTICLE 2
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES
Section 2.01. Designation and Amount
Section 2.02. Form of Notes
Section 2.03. Date and Denomination of Notes; Payments of Interest and Defaulted Amounts
Section 2.04. Execution, Authentication and Delivery of Notes
Section 2.05. Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary
Section 2.06. Mutilated, Destroyed, Lost or Stolen Notes
Section 2.07. Temporary Notes
Section 2.08. Cancellation of Notes Paid, Exchanged, Etc
Section 2.09. CUSIP Numbers
Section 2.10. Additional Notes; Repurchases
Section 3.01. Satisfaction and Discharge
ARTICLE 3
SATISFACTION AND DISCHARGE
ARTICLE 4
PARTICULAR COVENANTS OF THE COMPANY
Section 4.01. Payment of Principal and Interest
Section 4.02. Maintenance of Office or Agency
Section 4.03. Appointments to Fill Vacancies in Trustee’s Office
Section 4.04. Provisions as to Paying Agent
Section 4.05. Existence
Section 4.06. [Reserved]
Section 4.07. Additional Amounts
Section 4.08. Stay, Extension and Usury Laws
Section 4.09. Compliance Certificate; Statements as to Defaults
Section 4.10. Further Instruments and Acts
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ARTICLE 5
LISTS OF HOLDERS AND REPORTS BY THE COMPANY AND THE TRUSTEE
Section 5.01. Lists of Holders
Section 5.02. Preservation and Disclosure of Lists
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default
Section 6.02. Acceleration; Rescission and Annulment
Section 6.03. [Reserved]
Section 6.04. Payments of Notes on Default; Suit Therefor
Section 6.05. Application of Monies Collected by Trustee
Section 6.06. Proceedings by Holders
Section 6.07. Proceedings by Trustee
Section 6.08. Remedies Cumulative and Continuing
Section 6.09. Direction of Proceedings and Waiver of Defaults by Majority of Holders
Section 6.10. Notice of Defaults and Events of Default
Section 6.11. Undertaking to Pay Costs
ARTICLE 7
CONCERNING THE TRUSTEE
Section 7.01. Duties and Responsibilities of Trustee
Section 7.02. Reliance on Documents, Opinions, Etc
Section 7.03. No Responsibility for Recitals, Etc
Section 7.04. Trustee, Paying Agent, Transfer Agent, Exchange Agent or Note Registrar May Own Notes
Section 7.05. Monies and ADSs to Be Held in Trust
Section 7.06. Compensation and Expenses of Trustee
Section 7.07. Officers’ Certificate as Evidence
Section 7.08. Eligibility of Trustee
Section 7.09. Resignation or Removal of Trustee
Section 7.10. Acceptance by Successor Trustee
Section 7.11. Succession by Merger, Etc
Section 7.12. Trustee’s Application for Instructions from the Company
ARTICLE 8
CONCERNING THE HOLDERS
Section 8.01. Action by Holders
Section 8.02. Proof of Execution by Holders
Section 8.03. Who Are Deemed Absolute Owners
Section 8.04. Company-Owned Notes Disregarded
Section 8.05. Revocation of Consents; Future Holders Bound
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41
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44
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ARTICLE 9
HOLDERS’ MEETINGS
Section 9.01. Purpose of Meetings
Section 9.02. Call of Meetings by Trustee
Section 9.03. Call of Meetings by Company or Holders
Section 9.04. Qualifications for Voting
Section 9.05. Regulations
Section 9.06. Voting
Section 9.07. No Delay of Rights by Meeting
ARTICLE 10
SUPPLEMENTAL INDENTURES
Section 10.01. Supplemental Indentures Without Consent of Holders
Section 10.02. Supplemental Indentures with Consent of Holders
Section 10.03. Effect of Supplemental Indentures
Section 10.04. Notation on Notes
Section 10.05. Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee
ARTICLE 11
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 11.01. Company May Consolidate, Etc. on Certain Terms
Section 11.02. Successor Corporation to Be Substituted
Section 11.03. Opinion of Counsel to Be Given to Trustee
ARTICLE 12
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 12.01. Indenture and Notes Solely Corporate Obligations
ARTICLE 13
INTENTIONALLY OMITTED
ARTICLE 14
EXCHANGE OF NOTES
Section 14.01. Exchange Privilege
Section 14.02. Exchange Procedure; Settlement Upon Exchange.
Section 14.03. Increased Exchange Rate Applicable to Certain Notes Surrendered in Connection with Make-Whole
Fundamental Changes or Redemptions
Section 14.04. Adjustment of Exchange Rate
Section 14.05. Adjustments of Prices
Section 14.06. [Reserved]
Section 14.07. Effect of Recapitalizations, Reclassifications and Changes of the Ordinary Shares
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60
64
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Section 14.08. Certain Covenants
Section 14.09. Responsibility of Trustee and Exchange Agent
Section 14.10. Notice to Holders Prior to Certain Actions
Section 14.11. Stockholder Rights Plans
Section 14.12. Termination of Depositary Receipt Program
ARTICLE 15
REPURCHASE OF NOTES AT OPTION OF HOLDERS
Section 15.01. Repurchase at Option of Holders.
Section 15.02. Repurchase at Option of Holders Upon a Fundamental Change
Section 15.03. Withdrawal of Repurchase Notice or Fundamental Change Repurchase Notice
Section 15.04. Deposit of Repurchase Price or Fundamental Change Repurchase Price
Section 15.05. Covenant to Comply with Applicable Laws Upon Repurchase of Notes
ARTICLE 16
OPTIONAL REDEMPTION, CLEANUP REDEMPTION AND TAX REDEMPTION
Section 16.01. Optional Redemption
Section 16.02. Cleanup Redemption
Section 16.03. Tax Redemption
Section 16.04. Redemption Notice
Section 16.05. Exchange Election
Section 16.06. Acceleration
ARTICLE 17
MISCELLANEOUS PROVISIONS
Section 17.01. Provisions Binding on Company’s Successors
Section 17.02. Official Acts by Successor Corporation
Section 17.03. Addresses for Notices, Etc
Section 17.04. Governing Law; Jurisdiction
Section 17.05. Submission to Jurisdiction; Service of Process
Section 17.06. Evidence of Compliance with Conditions Precedent; Certificates and Opinions of Counsel to Trustee
Section 17.07. Legal Holidays
Section 17.08. No Security Interest Created
Section 17.09. Benefits of Indenture
Section 17.10. Table of Contents, Headings, Etc
Section 17.11. Execution in Counterparts
Section 17.12. Severability
Section 17.13. Waiver of Jury Trial
Section 17.14. Force Majeure
Section 17.15. Calculations
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Exhibit A
Exhibit B
Form of Note
Form of Authorization Certificate
EXHIBIT
v
A-1
B-1
INDENTURE dated as of July 20, 2020 between TRIP.COM GROUP LIMITED, a Cayman Islands exempted company, as issuer (the
“Company,” as more fully set forth in Section 1.01) and THE BANK OF NEW YORK MELLON, a banking corporation organized and existing under
the laws of the State of New York with limited liability, as trustee (the “Trustee,” as more fully set forth in Section 1.01).
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its 1.50% Exchangeable Senior Notes due 2027
(including any additional notes issued pursuant to Section 2.10 hereof) (the “Notes”), initially in an aggregate principal amount not to exceed
US$500,000,000, and in order to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has
duly authorized the execution and delivery of this Indenture; and
WHEREAS, the Form of Note, the certificate of authentication to be borne by each Note, the Form of Notice of Exchange, the Form of
Fundamental Change Repurchase Notice, the Form of Repurchase Notice and the Form of Assignment and Transfer to be borne by the Notes are to be
substantially in the forms hereinafter provided; and
WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee, as in
this Indenture provided, the valid, binding and legal obligations of the Company, and this Indenture a valid agreement according to its terms, have been
done and performed, and the execution of this Indenture and the issuance hereunder of the Notes have in all respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration
of the premises and of the purchase and acceptance of the Notes by the Holders thereof, the Company covenants and agrees with the Trustee for the
equal and proportionate benefit of the respective Holders from time to time of the Notes (except as otherwise provided below), as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01.
The words “herein,” “hereof,” “hereunder,” and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision. The terms defined in this Article include the plural as well as the singular.
“Additional ADSs” shall have the meaning specified in Section 14.03(a).
“Additional Amounts” shall have the meaning specified in Section 4.07(a).
“Additional Interest” means all amounts, if any, payable pursuant to Section 14.08(a).
“ADS” means an American Depositary Share, issued pursuant to the Deposit Agreement, representing one Ordinary Share of Huazhu as of the
date of this Indenture, and deposited with the ADS Custodian.
“ADS Custodian” means Citibank, N.A., with respect to the ADSs delivered pursuant to the Deposit Agreement, or any successor entity thereto.
“ADS Depositary” means Citibank, N.A., as depositary for the ADSs.
“ADS Price” shall have the meaning specified in Section 14.03(b).
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person means the power to
direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. For purposes of this Indenture and the
Notes, each of the Chairman of the Board of Directors, the Chief Executive Officer of the Company, the Chief Operating Officer of the Company and
the Chief Financial Officer of the Company shall be Affiliates of the Company.
“Agents” means the Paying Agent, the Transfer Agent, the Note Registrar and the Exchange Agent.
“Applicable Law” means any applicable law or regulation.
“Authority” means any competent regulatory, prosecuting, Tax or governmental authority in any jurisdiction.
“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
“Bid Solicitation Agent” means the Company or the Person appointed by the Company to solicit bids for the Trading Price of the Notes in
accordance with Section 14.01(b)(i). The Company shall initially act as the Bid Solicitation Agent.
“Board of Directors” means the board of directors of the Company or a committee of such board duly authorized to act for it hereunder.
“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors, and to be in full force and effect on the date of such certification, and delivered to the Trustee.
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“Business Day” means, with respect to any Note, each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking
institutions in the State of New York or the Cayman Islands are authorized or obligated by law or executive order to close.
“Capital Stock” means, for any entity, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) stock issued by that entity.
“Cash Settlement” shall have the meaning specified in Section 14.02(a).
“Change in Tax Law” shall have the meaning specified in Section 16.01.
“Clause A Distribution” shall have the meaning specified in Section 14.04(c).
“Clause B Distribution” shall have the meaning specified in Section 14.04(c).
“Clause C Distribution” shall have the meaning specified in Section 14.04(c).
“Cleanup Redemption” shall have the meaning specified in Section 16.02(a).
“close of business” means 5:00 p.m. (New York City time).
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Collateral Default” shall have the meaning specified in Section 14.08(a).
“Combination Settlement” shall have the meaning specified in Section 14.02(a).
“Commission” means the U.S. Securities and Exchange Commission.
“Common Equity” of any Person means ordinary share capital or common stock of such Person that is generally entitled (a) to vote in the
election of directors of such Person or (b) if such Person is not a corporation, to vote or otherwise participate in the selection of the governing body,
partners, managers or others that will control the management or policies of such Person.
“Company” shall have the meaning specified in the first paragraph of this Indenture, and subject to the provisions of Article 11, shall include its
successors and assigns.
“Company Notice” shall have the meaning specified in Section 15.01(a).
“Company Order” means a written order of the Company, signed by an Officer of the Company and delivered to the Trustee.
“Corporate Trust Office” means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which
office at the date hereof is located at 240 Greenwich Street, New York, NY 10286, United States of America; Attention: Global Corporate Trust –
Trip.com Group Limited; Facsimile No.: +1 212-815-5915; and shall include a reference to the Specified Corporate Trust Office, or such other address
as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor trustee
(or such other address as such successor trustee may designate from time to time by notice to the Holders and the Company).
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“Daily Exchange Value” means, for each of the 20 consecutive Trading Days during the Observation Period, 5% of the product of (a) the
Exchange Rate on such Trading Day and (b) the Daily VWAP for such Trading Day.
“Daily Measurement Value” means the Specified Dollar Amount (if any), divided by 20.
“Daily Settlement Amount,” for each of the 20 consecutive Trading Days during the Observation Period, shall consist of:
(a) cash in an amount equal to the lesser of (i) the Daily Measurement Value and (ii) the Daily Exchange Value on such Trading Day; and
(b) if the Daily Exchange Value on such Trading Day exceeds the Daily Measurement Value, a number of ADSs equal to (i) the difference
between the Daily Exchange Value and the Daily Measurement Value, divided by (ii) the Daily VWAP for such Trading Day.
“Daily VWAP” means, for each of the 20 consecutive Trading Days during the relevant Observation Period, the per ADS volume-weighted
average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page “HTHT US
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