UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
(cid:133) REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015.
OR
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
(cid:133) SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
Date of event requiring this shell company report. . . . . . . . . . . . . . . . . . .
Commission file number: 001-36430
Tuniu Corporation
(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)
Tuniu Building No. 699-32
Xuanwudadao, Xuanwu District
Nanjing, Jiangsu Province 210042
The People’s Republic of China
(Address of principal executive offices)
Conor Chia-hung Yang, Chief Financial Officer
Telephone: +(86 25) 8685-3969
Email: ir@tuniu.com
Tuniu Building No. 699-32
Xuanwudadao, Xuanwu District
Nanjing, Jiangsu Province 210042
The People’s Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
American depositary shares (one
American depositary share
representing three Class A ordinary
shares, par value US$0.0001 per share)
Class A ordinary shares, par value
US$0.0001 per share*
Name of each exchange on which
registered
The NASDAQ Stock Market LLC
(The NASDAQ Global Market)
The NASDAQ Stock Market LLC
(The NASDAQ Global Market)
* Not for trading, but only in connection with the listing on The NASDAQ Global Market of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
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.
269,597,392 Class A ordinary shares (excluding 1,851,561 Class A ordinary shares, represented by American depositary shares, issued and reserved
for the future exercise of options or the vesting of other awards under the 2008 Plan and the 2014 Plan) and 17,373,500 Class B ordinary shares, par
value US$0.0001 per share, as of December 31, 2015.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
(cid:133) Yes (cid:95) 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.
(cid:133) Yes (cid:95) 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.
(cid:95) Yes (cid:133) No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
(cid:95) Yes (cid:134) No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:133)
Accelerated filer (cid:95)
Non-accelerated filer (cid:133)
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP (cid:95)
International Financial Reporting Standards as issued
by the International Accounting Standards Board (cid:133)
Other (cid:133)
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.
(cid:133) Item 17 (cid:133) 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).
(cid:133) Yes (cid:95) 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.
(cid:133) Yes (cid:133) No
INTRODUCTION
FORWARD-LOOKING INFORMATION
PART I
TABLE OF CONTENTS
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
Item 16H.
PART II
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
Information on the Company
Unresolved Staff Comments
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
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
Purchases 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.
Financial Statements
Financial Statements
Exhibits
SIGNATURES
i
2
2
3
3
3
3
40
65
65
89
99
100
101
101
115
116
117
117
118
118
120
120
120
121
121
121
121
121
121
121
121
122
126
INTRODUCTION
In this annual report, except where the context otherwise requires and for purposes of this annual report only:
“we,” “us,” “our company,” “our,” or “Tuniu” refers to Tuniu Corporation, a Cayman Islands company, its subsidiaries, and, in the context of describing
our operations and consolidated financial information, also include the consolidated affiliate entities, Nanjing Tuniu Technology Co., Ltd., or Nanjing
Tuniu, and its subsidiaries;
“gross bookings” refer to the total amount paid by our customers for the travel products that we have delivered and the travel services that we have
rendered, including the related taxes, fees and other charges borne by our customers;
“trips” refers to the number of packaged tours sold by us, including organized tours and self-guided tours;
“unique visitor” to our online platform refers to a visitor to our website from a specific IP address or a visitor to our mobile platform using a specific mobile
device;
“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan, Hong Kong and Macau;
“shares” or “ordinary shares” refers to our ordinary shares, which include both Class A ordinary shares and Class B ordinary shares;
“ADSs” refer to American depositary shares, representing our Class A ordinary shares; each ADS represents three Class A ordinary shares;
“U.S. GAAP” refers to generally accepted accounting principles in the United States;
“RMB” or “Renminbi” refers to the legal currency of China;
“$,” “dollars,” “US$” or “U.S. dollars” refers to the legal currency of the United States; and
all discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
FORWARD-LOOKING INFORMATION
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. These statements
are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by
terminology such as “may,” “will,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to” or other similar expressions. We
have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may
affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to:
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our goals and strategies;
the expected growth of the online leisure travel market in China;
our expectations regarding demand for our products and services;
our expectations regarding our relationships with customers and travel suppliers;
our ability to offer competitive travel products and services;
2
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
our future business development, results of operations and financial condition;
competition in our industry in China;
relevant government policies and regulations relating to our corporate structure, business and industry;
our expectation regarding the use of proceeds from this offering;
general economic and business condition in China and elsewhere; and
assumptions underlying or related to any of the foregoing.
We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunction
with the risk factors disclosed in “Item 3.D. Key Information—Risk Factors.” Those risks are not exhaustive. We operate in a rapidly evolving environment.
New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement.
We do not undertake any obligation to update or revise the forward-looking statements, statements, whether as a result of new information, future events or
otherwise, except as required under applicable law.
This annual report also contains statistical data and estimates that we obtained from industry publications and reports generated by government
agencies and third-party providers of market intelligence. These industry publications and reports generally indicate that the information contained therein was
obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although we believe that the
publications and reports are reliable, we have not independently verified the data.
Item 1.
Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2.
Offer Statistics and Expected Timetable
PART I
Not applicable.
Item 3.
Key Information
A.
Selected Financial Data
The following table presents selected consolidated financial information for our company. The selected consolidated statements of comprehensive loss
for the three years ended December 31, 2013, 2014 and 2015 and the consolidated balance sheets data as of December 31, 2014 and 2015 have been derived
from our audited consolidated financial statements, which are included in this annual report beginning on page F-1. The selected consolidated statements of
comprehensive loss for the year ended December 31, 2011 and 2012 and the selected consolidated balance sheet data as of December 31, 2011, 2012 and 2013
have been derived from our audited consolidated financial statements not included in this annual report. Our historical results do not necessarily indicate results
expected for any future periods. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to
our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual
report. Our audited consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
3
Summary Consolidated Statements of
Comprehensive Loss Data:
Revenues:
Organized tours
Self-guided tours
Others
Total revenues
Less: Business and related taxes
Net revenues
Cost of revenues
Gross profit
Operating expenses:
Research and product development
Sales and marketing
General and administrative
Other operating income
Loss from operations
Other income/(expenses):
Interest income
Foreign exchange gains/(losses), net
Other loss, net
Loss before income tax expense
Income tax (expense) benefit
For the Year Ended December 31,
2011
RMB
2012
RMB
2013
RMB
2014
RMB
2015
RMB
US$
(in thousands, except for share, per share and per ADS data)
751,388
17,559
2,667
771,614
(6,071)
1,075,094
32,359
12,875
1,892,826
48,901
20,744
3,432,825
93,126
28,756
7,358,879
194,162
127,745
1,136,015
29,973
19,720
1,120,328
(7,447)
1,962,471
(12,784)
3,554,707
(19,768)
7,680,786
(35,526)
1,185,708
(5,484)
765,543
(741,716)
1,112,881
(1,073,732)
1,949,687
(1,829,665)
3,534,939
(3,308,801)
7,645,260
(7,274,675)
1,180,224
(1,123,016)
23,827
39,149
120,022
226,138
370,585
57,208
(21,386)
(50,589)
(53,877)
1,651
(33,370)
(57,994)
(62,006)
775
(38,994)
(110,071)
(69,679)
1,689
(104,881)
(434,191)
(166,988)
6,902
(298,199)
(1,154,155)
(385,442)
12,175
(46,034)
(178,171)
(59,502)
1,879
(100,374)
(113,446)
(97,033)
(473,020)
(1,455,036)
(224,620)
2,287
6,529
(392)
7,432
(741)
(357)
(91,950)
—
(107,112)
(78)
16,163
1,286
(48)
(79,632)
—
31,284
(5,334)
(788)
76,516
(83,118)
(1,336)
(447,858)
—
(1,462,974)
589
11,812
(12,831)
(205)
(225,844)
91
Net loss
(91,950)
(107,190)
(79,632)
(447,858)
(1,462,385)
(225,753)
Net loss attributable to noncontrolling interests
Net loss attributable to Tuniu Corporation
Deemed dividends to preferred shareholders
Net loss attributable to ordinary shareholders
—
(91,950)
(30,929)
(122,879)
—
(107,190)
—
(107,190)
—
(79,632)
(59,428)
(139,060)
—
(447,858)
(15,606)
(463,464)
(3,006)
(1,459,379)
—
(1,459,379)
(464)
(225,289)
—
(225,289)
Net loss per ordinary share attributable to ordinary
shareholders
Basic
Diluted
Net loss per ADS attributable to ordinary shareholders
Basic
Diluted
Weighted average number of ordinary shares used in
(4.73)
(4.73)
(14.18)
(14.18)
(4.12)
(4.12)
(12.37)
(12.37)
(5.35)
(5.35)
(16.05)
(16.05)
(4.38)
(4.38)
(13.15)
(13.15)
(5.88)
(5.88)
(17.63)
(17.63)
(0.91)
(0.91)
(2.72)
(2.72)
computing basic and diluted loss per share
26,000,000
26,000,000
26,000,000
105,746,313
248,362,837
248,362,837
4
Summary Consolidated Balance Sheet Data:
Cash and cash equivalents
Restricted cash
Short-term investments
Prepayments and other current assets
Total assets
Accounts payable
Advances from customers
Total liabilities
Total mezzanine equity
Total shareholders’ equity/(deficit)
Summary Consolidated Statements of Cash Flow
Data:
Net cash provided by/(used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
2011
RMB
2012
RMB
As of December 31,
2014
2013
RMB
RMB
(in thousands)
332,101
11,530
—
56,635
427,766
55,822
157,919
250,938
350,744
(173,915)
299,238
6,875
30,000
127,050
502,838
127,240
244,214
433,262
350,744
(281,168)
419,403
9,250
327,000
286,560
1,075,373
288,965
396,738
784,017
716,441
(425,086)
1,457,722
44,030
468,570
575,297
2,645,017
382,705
638,828
1,236,294
—
1,408,723
2015
RMB
US$
2,101,217
338,997
1,226,415
1,699,468
7,186,141
767,307
1,223,313
3,848,418
—
3,337,723
324,372
52,332
189,326
262,353
1,109,349
118,452
188,847
594,093
—
515,256
2011
RMB
2012
RMB
For the Year Ended December 31,
2013
RMB
2014
RMB
(in thousands)
2015
RMB
US$
36,270
(20,686)
257,447
14,663
(46,786)
—
116,736
(304,218)
306,360
(271,102)
(227,923)
1,540,397
(514,735)
(1,915,168)
3,005,838
(79,462)
(295,651)
464,022
The following table presents summary operating data for the years indicated:
Number of trips (in thousands)
Organized tours (excluding local tours)
Local tours
Self-guided tours
Exchange Rate Information
2011
For the Year Ended December 31,
2012
2014
2013
174
409
49
236
503
110
367
687
221
712
1,074
396
2015
1,633
1,702
1,114
Our business is primarily conducted in China and almost all of our revenues are denominated in Renminbi. However, periodic reports made to
shareholders will include current period amounts translated into U.S. dollars using the then current exchange rates, for the convenience of the readers. The
conversion of Renminbi into U.S. dollars in this annual report is based on the noon buying rate in New York City for cable transfers in RMB as certified for
customs purposes by the Federal Reserve Board. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in
this annual report were made at a rate of RMB6.4778 to US$1.00, the noon buying rate in effect as of December 31, 2015. We make no representation that any
Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The
PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and
through restrictions on foreign trade. On April 22, 2016, the noon buying rate was RMB6.5004 to US$1.00.
The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated.
5
Period
2011
2012
2013
2014
2015
October
November
December
2016
January
February
March
April (through April 22, 2016)
Source: Federal Reserve Statistical Release
Period-End
Noon Buying Rate
Average(1)
Low
(RMB per U.S. Dollar)
High
6.2939
6.2301
6.0537
6.2046
6.4778
6.3180
6.3883
6.4778
6.5752
6.5525
6.4480
6.5004
6.4475
6.2990
6.1412
6.1704
6.2869
6.3505
6.3640
6.4491
6.5726
6.5501
6.5027
6.4726
6.6364
6.3879
6.2438
6.2591
6.4896
6.3591
6.3945
6.4896
6.5932
6.5795
6.5500
6.5004
6.2939
6.2221
6.0537
6.0402
6.1870
6.3180
6.3180
6.3883
6.5219
6.5154
6.4480
6.4571
(1) Annual averages are calculated using the average of month-end rates of the relevant year. Monthly averages are calculated using the average of the daily
rates during the relevant period.
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Risks Related to Our Business and Industry
Declines or disruptions in the leisure travel industry in China may materially and adversely affect our business and results of operations.
We are dependent on the leisure travel industry for substantially all of our revenues. The leisure travel industry is dependent on personal discretionary
spending levels, which may be materially and adversely affected by economic downturns and recessions. Although the leisure travel industry in China has
experienced rapid growth over the past decade, any severe or prolonged slowdown in the Chinese economy could reduce expenditures for leisure travel, which
in turn may adversely affect our financial condition and results of operations. The Chinese economy recovered in 2010 and remained relatively stable in 2011,
but the growth rate of China’s GDP decreased in 2013, 2014 and 2015. It is uncertain whether this economic slowdown will continue into 2016 and beyond.
Any severe or prolonged slowdown in the Chinese economy, slowdown in the growth rate of disposable income per capita in China or the recurrence of any
financial disruptions may materially and adversely affect the leisure travel industry in China and our business, financial condition and results of operations.
Our business may also be significantly affected by other factors that tend to reduce leisure travel, including increased prices in hotel, air-ticketing, fuel
or other travel-related sectors, work stoppages or labor unrest at airlines, increased occurrences of travel-related accidents, outbreaks of contagious diseases,
natural disasters and extreme unexpected bad weather, terrorist attacks and political unrest. For example, the travel industry was negatively impacted by the
outbreak of severe acute respiratory syndrome in several regions in Asia, including Hong Kong and China, in early 2003, snowstorms that severely affected
southern China in early 2008, the outbreak of H1N1 influenza (swine flu) that occurred in Mexico and the United States in April 2009, the earthquake, tsunami
and nuclear crisis in Japan in early 2011, heavy haze that shrouded central and northern China and some Southeast Asian countries in 2013, the outbreak of
Ebola hemorrhagic fever in West Africa beginning in March 2014, the disappearance of a Malaysia Airlines flight in March 2014 as well as the crashes of
Malaysia Airlines and AirAsia flights in July and December 2014, respectively, which all had a negative impact on air travel among our target customers. In
addition, overseas leisure travel products and services accounted for over 65% of our gross bookings in 2015. Even though China has recently reached
agreements with certain countries such as the United States and Canada to relax existing travel visa restrictions for Chinese nationals, our overseas leisure travel
business may be negatively affected by any adverse change in the visa policies of foreign countries that makes it difficult for Chinese nationals to obtain tourist
visas. Terrorist attacks or threats of terrorist attacks, political unrests, wars, imposition of taxes or surcharges by regulatory authorities and regional hostilities
may also reduce the demand for overseas tours. For example, the Paris terrorist attacks in November 2015 negatively impacted the near-term travel demands for
Europe. We have little or no control over the occurrence of such declines or disruptions, which could result in a decrease in demand for our travel products and
services. This decrease in demand, depending on the scope and duration, could materially and adversely affect our business and results of operations over the
short and long term.
6
If we do not continue to provide competitive travel products and services, we may not be able to attract new customers or to retain existing customers, and
our business, financial condition and results of operations could suffer.
Our success depends on our ability to attract new customers and retain existing customers, which in turn requires our continual provision of a wide
array of competitive travel products and services. In light of the rapidly rising levels of disposable income in China, demand for vacation, recreation and other
forms of leisure travel has increased rapidly in recent years. Participants in the online travel industry are continually developing new travel products and services
in response to increasing customer demand. We strive to stay abreast of emerging and rapidly changing customer preferences and to continue to anticipate
trends that will appeal to existing and potential customers. We will also continue to invest in research and development in order to constantly improve the speed,
accuracy and comprehensiveness of our online platform. If we fail to keep on improving our travel products and services and platform at a competitive pace, we
may lose customers to our competitors and may not attract new customers. In addition to packaged tours, we provide other travel-related services, such as sales
of tourist attraction tickets and visa processing services. We intend to further broaden our product selection by extending our coverage of departing cities and
travel destinations as well as offering more departure time selections. If we fail to continue to source quality travel products and services tailored to
accommodate our customers’ changing needs and preferences, we may not be able to sell additional products and services to our current customers, retain our
current customers or attract new customers, and our business, financial condition and results of operations will be materially and adversely affected.
Failure to maintain the quality of customer services could harm our reputation and our ability to retain existing customers and attract new customers,
which may materially and adversely affect our business, financial condition and results of operations.
Our business is significantly affected by the overall size of our customer base, which in turn is determined by, among other factors, their experience
with our customer services. As such, the quality of customer services is critical to retaining our existing customers and attracting new customers. If we fail to
provide quality customer services, our customers may be less inclined to book travel products and services with us or recommend us to new customers, and may
switch to our competitors. Failure to maintain the quality of customer services could harm our reputation and our ability to retain existing customers and attract
new customers, which may materially and adversely affect our business, financial condition and results of operations.
We may not be able to adequately control and ensure the quality of travel products and services sourced from our travel suppliers. If there is any
deterioration in the quality of their performance, our customers may seek damages from us and not continue using our online platform.
Our ability to ensure satisfactory customer experience in a large part depends on our travel suppliers to provide high-quality travel products and
services. Our reputation and brand will be negatively affected if our travel suppliers fail to provide quality travel products and services.
The actions we take to monitor and enhance the performance of our travel suppliers may be inadequate in timely discovering quality issues. There have
been customer complaints and litigation against us due to our travel suppliers’ failure to provide satisfactory travel products or services. If our customers are
dissatisfied with the travel products and services provided, they may reduce their use of, or completely forgo, our online platform, and may even demand
refunds of their payments to us or claim compensation from us for the damages suffered as a result of our travel suppliers’ performance or misconduct, which
could materially and adversely affect our business, financial condition and results of operations.
7
We have incurred losses in the past and will likely incur losses in the future.
We have incurred net losses historically and will likely incur losses in the future as we grow our business. We had a net loss of RMB79.6 million,
RMB447.9 million and RMB1,462.4 million (US$225.8 million) in 2013, 2014 and 2015, respectively. Our historical net losses were partially attributable to
our spending associated with our rapidly expanding business operations, including expenses related to regional expansion, branding and advertising campaigns,
mobile related initiatives and expenses related to technology, product development and administrative personnel such as share-based compensation. We expect
that we will continue to incur significant expenses to further grow our business, which will affect our profitability and cash flow from operations in the future.
In addition, our ability to achieve profitability is affected by various factors that are beyond our control. For example, our revenues and profitability
depend on the continual development of the online leisure travel industry in China and consumers’ preference to make travel bookings online. We cannot assure
you that making travel bookings online will become more widely accepted in China or that consumers will increase their spending on online leisure travel
booking. Factors negatively affecting our travel suppliers’ profitability will in turn adversely affect our financial condition and results of operations.
If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected and we will likely
continue to incur net loss in the near future.
We face intense competition and may not be able to compete successfully against existing and new competitors.
We operate in China’s highly competitive travel industry. We compete with not only other online travel companies, but also traditional travel service
providers and tour operators, airlines and hotels and large, established Internet search engines. See “Item 4.B. Information on the Company—Business
Overview—Competition.” Some of our current and potential competitors may have greater financial, marketing and other resources than we do. In addition,
some of our competitors may be acquired by, receive investments from or enter into strategic relationships with larger, well-established and well-financed
companies or investors. Furthermore, our business model causes us to maintain a cooperative-competitive relationship with some of our competitors, especially
tour operators, as they are also our travel suppliers.
Many of our competitors have launched, and may continue to launch, aggressive advertising campaigns, special promotions and other marketing
activities to promote their brands, acquire new customers or increase their market shares. In response, we have started to take and may continue to take similar
measures and as a result will incur significant expenses, which could increase our net loss. We cannot assure you that we will be able to successfully compete
against existing or new competitors. If we are not able to compete successfully, we may lose our market share and our business, financial condition and results
of operations may be materially and adversely affected.
If we fail to enhance our brand recognition, we may face difficulty in retaining existing and attracting new customers and travel suppliers and our business
may be harmed.
Recognition and reputation of our “Tuniu” brand among our targeted customers and travel suppliers have contributed significantly to our growth. We
have made continual investments in enhancing awareness of our brand among customers and travel suppliers since our inception. Our brand recognition and
reputation also depend on our ability to provide high-quality customer services, address customer needs and handle customer complaints properly, maintain our
relationships with travel suppliers and provide a user-friendly online platform. See “—Risks Related to Our Business and Industry—Failure to maintain the
quality of customer services could harm our reputation and our ability to retain existing customers and attract new customers, which may materially and
adversely affect our business, financial condition and results of operations”, “—Risks Related to Our Business and Industry—If we are unable to maintain
existing relationships with our travel suppliers, or develop relationships with new travel suppliers on favorable terms or terms similar to those we currently have,
our business and results of operations may suffer” and “—Risks Related to Our Business and Industry—The proper functioning of our online platform,
including our web and mobile platforms, and management systems is essential to our business. Any failure to maintain their satisfactory performance will
materially and adversely affect our business, reputation, financial condition and results of operations.” Failure to maintain the strength of our brand could reduce
the number of customers and deteriorate our relationships with travel suppliers.
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In addition, some of our competitors have well-established brands in the travel industry, and may have more financial and other resources to advertise
and promote their brands. Therefore, we intend to incur more advertising and marketing expenditures and use other resources to maintain and increase our brand
recognition. Our marketing costs may also increase as a result of inflation in media pricing in China, including costs for purchasing search engine keywords and
placing online and offline advertisements. If we fail to cost-effectively maintain and increase our brand recognition, our financial condition and results of
operations may be materially and adversely affected.
We are exposed to proceedings or claims arising from travel-related accidents or customer misconduct during their travels, the occurrence of which may be
beyond our control.
Accidents are a leading cause of mortality and morbidity among tourists. We are exposed to risks of our customers’ claims arising from or relating to
travel-related accidents. As we enter into contracts with our customers directly, our customers typically take actions against us for the damages they suffer
during their travels. However, such accidents may result from the negligence or misconduct of our travel suppliers or other service providers, over which we
have no or limited control. See also “—Risks Related to Our Business and Industry—We may not be able to adequately control and ensure the quality of travel
products and services sourced from our travel suppliers. If there is any deterioration in the quality of their performance, our customers may seek damages from
us and not continue using our online platform.” We maintain insurance coverage for our liabilities as a travel company, and are indemnified by the liable travel
suppliers for the damages claimed by our customers. However, there is no assurance that such insurance or indemnification will be sufficient to cover all of our
losses. In addition, some of the travel-related accidents result from adventure activities undertaken by our customers during their travels, such as scuba diving,
white water rafting, wind surfing and skiing. Furthermore, we may be affected by our customers’ misconduct during their travels, over which we have no or
limited control. Such accidents and misconduct, even if not resulting from our or our travel suppliers’ negligence or misconduct, could create a public
perception that we are less reliable than our competitors, which would harm our reputation, and could adversely affect our business and results of operations.
The proper functioning of our online platform, including our web and mobile platforms, and management systems is essential to our business. Any failure
to maintain their satisfactory performance will materially and adversely affect our business, reputation, financial condition and results of operations.
Availability, satisfactory performance and reliability of our online platform, including our web and mobile platforms, are critical to our ability to attract
and retain customers and provide quality travel products and services to our customers. Any unavailability or slowdown of our online platforms would reduce
the number of our customers and our customers’ travel bookings. Some telecommunications carriers have system constraints that can affect our customer
experience. For example, if a large number of customers use the same telecommunications carrier at the same time for services requiring a large amount of data
transmission, the customers could experience reduced speed or other technical issues due to the carrier’s capacity constraints, over which we have no control.
Our servers may also be vulnerable to computer viruses, physical or electronic break-ins or other potential disruptions, which could lead to interruptions, delays,
loss of data or the inability to accept and process customer queries or bookings. We may also experience interruptions caused by reasons beyond our control
such as power outages. Unexpected interruptions could damage our reputation and result in a material decrease in our revenues. In addition, our online platform
may contain undetected errors or “bugs” that could adversely affect their performance.
In 2015, the number of orders placed through our mobile platform accounted for approximately 70% of total orders placed through our online platform
and average daily unique visitors on our mobile platform accounted for approximately 70% of the average daily unique visitors on our online platform. As a
result, our mobile platform serves as an important and integral part of our customers’ research on travel-related information. The lower functionality, speed and
memory generally associated with mobile devices may make it more difficult for our customers to fully access our mobile platform, and we may fail to attract
and retain a significant portion of the growing number of customers who search for and book travel products and services through mobile devices. We may also
experience difficulties monetizing customer traffic to our mobile platform.
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In addition, we rely significantly on our proprietary N-Booking system and other management systems to facilitate and process transactions. We may
in the future experience system interruptions that prevent us from efficiently fulfilling bookings or providing services and support to our customers or travel
suppliers. Any interruptions, outages or delays in our systems, or deterioration in their performance, could impair our ability to process transactions and
decrease the quality of our services to our customers or travel suppliers. If we were to experience frequent or persistent system failures, our reputation and brand
would be harmed.
If we are unable to maintain existing relationships with our travel suppliers, or develop relationships with new travel suppliers on favorable terms or terms
similar to those we currently have, our business and results of operations may suffer.
Our business is dependent on our ability to maintain our relationships and arrangements with existing travel suppliers. For most of our suppliers, we do
not prohibit our travel suppliers from developing business relationships with our competitors or selling, through their direct sales, travel products that are the
same as or similar to those they supply to us. If we are unable to maintain satisfactory relationships with our existing travel suppliers, or if our travel suppliers
establish similar or more favorable relationships with our competitors, or if our travel suppliers increase their competition with us through their direct sales, we
may not have the necessary supply to meet the needs of our customers, or we may not obtain it at satisfactory rates. We do not enter into any long-term
agreements with our travel suppliers. We cannot assure you that our travel suppliers will renew our agreements in the future on favorable terms or terms similar
to those we currently have agreed. Our travel suppliers may increase the prices that they charge us or the deposits that they require from us. As a result, the
amount, pricing and breadth of travel products and services that we are able to offer may be reduced and our business and results of operations could be
materially and adversely affected.
Furthermore, in order to grow our business, we will need to develop relationships with new travel suppliers of good quality. We cannot assure you that
we will be able to identify appropriate travel suppliers or enter into arrangements with those travel suppliers on favorable terms or at all. Any failure to do so
could harm the growth of our business and adversely affect our financial condition and results of operations.
We may suffer losses if we are unable to predict the amount of travel products we will need to purchase in advance.
For peak seasons and for certain tours and destinations, we have made commitments with a number of travel suppliers to purchase packaged tours,
hotel rooms and air tickets before selling them to our customers and thereby incur inventory risk. If we are unable to accurately predict demand for the packaged
tours, hotel rooms and air tickets that we are committed to purchase and which are nonrefundable, we would be responsible for bearing the cost of the travel
products we are unable to sell, and our financial condition and results of operations would be adversely affected.
We may not be able to effectively manage our growth and expansion or implement our business strategies, in which case our business and results of
operations may be materially and adversely affected.
We have experienced a period of rapid growth and expansion, including our recent rapid expansion in lower tier cities in China. Such growth and
expansion has placed, and will continue to place, significant strain on our management and resources. We cannot assure you that this level of significant growth
and expansion will be sustainable or achieved at all in the future. We believe that our continued growth and expansion will depend on our ability to provide
competitive travel products and services, attract new customers, continue developing travel products and services and innovative technologies in response to
customer demand and preferences, increase brand awareness through marketing and promotional activities, expand into new market segments, and take
advantage of any growth in the relevant markets. We cannot assure you that we will achieve any of the above.
10
To manage our growth and expansion, and to achieve profitability, we anticipate that we will need to implement a variety of new and upgraded
operational and financial systems, procedures and controls, including the improvement of our N-Booking system and other management systems. We will also
need to further expand, train, manage and motivate our workforce and manage our relationships with our travel suppliers and customers. All of these objectives
entail risks and will require substantial management efforts and skills and significant additional expenditures. Our further expansion may divert our
management, operational or technological resources from our existing business operations. In addition, our expansion has required us to operate in new cities in
China, including a number of small cities in China, where we may have difficulty in adjusting to local market demands and regulatory requirements. We cannot
assure you that we will be able to effectively manage our growth and expansion or implement our future business strategies effectively, and failure to do so may
materially and adversely affect our business and results of operations.
Our quarterly results are likely to fluctuate because of seasonality in the leisure travel industry in China.
Our business experiences fluctuations, reflecting seasonal variations in demand for leisure travel services. Sales of leisure travel products and services
will increase in respect of holiday periods and decrease in respect of off-peak times, while prices of leisure travel products and services are subject to fluctuation
between peak seasons and low seasons. For example, the third quarter of each year generally contributes the highest percentage of our annual revenues, because
many of our customers tend to travel during summer holidays in July and August. Consequently, our results of operations may fluctuate from quarter to quarter.
Our rapid growth has tended to mask the seasonality of our business. As our growth rate slows, the seasonality in our business will become more pronounced
and cause our operating results to fluctuate.
If we are unable to identify, attract, hire, train and retain key individuals and highly skilled employees, our business may be adversely affected
Our future performance depends on the continued service of our senior management, in particular, Mr. Dunde Yu, our co-founder, chairman and chief
executive officer, and Mr. Haifeng Yan, our co-founder, director, president and chief operating officer. If one or more of our key executives were unable or
unwilling to continue in their present positions, we may not be able to replace them easily, our future growth may be constrained, our business may be disrupted
and our financial condition and results of operations may be materially and adversely affected. There is no assurance that we can continue to retain their services
and there can be no assurance that they will not compete against us.
If our business continues to expand, we will need to hire additional employees, including supplier management personnel to maintain and expand our
travel supplier network, information technology and engineering personnel to maintain and expand our online platform and customer service personnel to serve
an increasing number of customers. If we are unable to identify, attract, hire, train and retain sufficient employees in these areas, our customers may not have
satisfactory experiences with us and may turn to our competitors, which may adversely affect our business and results of operations.
We may be subject to legal or administrative proceedings regarding our travel products and services, information provided on our online platform or other
aspects of our business operations, which may be time-consuming to defend and affect our reputation.
From time to time, we have become and may in the future become a party to various legal or administrative proceedings arising in the ordinary course
of our business, including breach of contract claims, anti-competition claims and other matters. For details, see “Item 8.A. Financial Information—Consolidated
Statements and Other Financial Information—Legal Proceedings.” Such proceedings are inherently uncertain and their results cannot be predicted with
certainty. Regardless of the outcome and merit of such proceedings, any such legal action could have an adverse impact on our business because of defense
costs, negative publicity, diversion of management’s attention and other factors. In addition, it is possible that an unfavorable resolution of one or more legal or
administrative proceedings, whether in the PRC or in another jurisdiction, could materially and adversely affect our financial position, results of operations or
cash flows in a particular period or damage our reputation. In addition, our online platform contains information about our travel products and services, vacation
destinations and other travel-related topics. It is possible that our customers would take action against us in the event that any content accessible on our online
platform were to contain errors or false or misleading information.
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We may be subject to detrimental adverse publicity, malicious allegations or other conduct by people or entities, which could harm our reputation, adversely
affect our business and the trading price of our ADSs.
We have been, and in the future may be, the target of adverse publicity, malicious allegations or other detrimental conduct by people or entities. Such
allegations, directly or indirectly against us, may be posted in internet chat-rooms or on blogs or any website by anyone on an anonymous basis. We may be
required to spend significant time and incur substantial costs in response to such allegations or other detrimental conduct, and there is no assurance that we will
be able to conclusively refute each of them within a reasonable period of time, or at all. Our reputation may be harmed as a result of the public dissemination of
malicious allegations about our personnel, business, operations, accounting, prospects or business ethics, which in turn could adversely affect our business and
the trading price of our ADSs.
We have limited experience and operating history in developing and providing new products and services, which may negatively affect our business,
financial condition and results of operations.
As part of our growth strategy, we intend to develop and offer new travel products and services to satisfy the evolving needs of our customers. In
January 2016, we launched an open platform for air ticketing and hotel booking services. New bundles such as the “Air Ticket plus X” and “Hotel plus X” allow
our new services to closely complement our core leisure travel services. We also launched bus ticketing and mobile car rental channels in order to provide
leisure travelers with the most comprehensive solutions. We have limited experience and operating history in developing and operating these new services.
These and other new products and services we may offer in the future present operating and marketing challenges that are different from those we currently
encounter. In addition, the market for our new travel products and services may be highly competitive. If we fail to successfully develop and offer our new
travel products and services in an increasingly competitive market, we may not be able to capture the growth opportunities associated with them or recover the
development and marketing costs, and our future results of operations and growth strategies could be adversely affected.
We have limited experience in operating a finance business. Increased exposure to credit risks or significant deterioration in the asset quality of our finance
business may have a material adverse effect on our business, results of operations and financial condition.
We started to participate in the finance sector in China in 2015. We offer a range of financial services, including consumer financing, supply chain
financing and yield enhancement products and insurance products to our customers. Expansion in this new business area involves new risks and challenges. For
certain financial products, we have committed or will commit our own capital. Our lack of familiarity with the finance sector may make it difficult for us to
anticipate the demands and preferences in the market and develop financial products that meet the requirements and preference. We may not be able to
successfully identify new product and service opportunities or develop and introduce these opportunities to our clients in a timely and cost-effective manner, or
our clients may be disappointed in the returns from financial products that we offer.
The risk of nonpayment of loans is inherent in the finance business and we are subject to credit risk resulting from defaults in payment for loans by the
suppliers and customers. Credit risks are exacerbated in consumer financing because there is relatively limited information available about the credit histories of
customers. There can be no assurances that our monitoring of credit risk issues and our efforts to mitigate credit risks through our credit assessment and risk
management policies are or will be sufficient to result in lower delinquencies. Furthermore, our ability to manage the quality of our loan portfolio and the
associated credit risks will have significant impact on the results of operations of our finance business. Deterioration in the overall quality of loan portfolio and
increased exposure to credit risks may occur due to a variety of reasons, including factors beyond our control, such as a slowdown in the growth of the PRC or
global economies or a liquidity or credit crisis in the PRC or global finance sectors, which may adversely affect the businesses, operations or liquidity of our
suppliers and customers or their ability to repay or roll over their debt. Any significant deterioration in the asset quality of our finance business and significant
increase in associated credit risks may have a material adverse effect on our business, results of operations and financial condition.
12
In addition, the development of finance business is capital intensive. We continue to provide management, administration and collection services on the
transferred financial assets and are obligated to absorb a portion of the losses incurred in the outstanding portfolio of the transferred financial assets in the event
of default. We may need additional cash resources due to further developments of our financial services or changed business conditions, which may cause us to
seek credit facilities or sell additional equity or debt securities. The incurrence of indebtedness would result in increased debt obligations and could result in
operating and financial covenants that would restrict our operations. Additionally, it is uncertain whether financing will be available in amounts or on terms
acceptable, if at all.
If the fragmented travel industry in China becomes consolidated, our business, financial condition and results of operations may be adversely affected.
China’s enormous size and population, imbalanced economic development and differences in consumer behavior across the country have created a
highly fragmented and diverse travel industry. In recent years, customers have been shifting from highly fragmented traditional offline travel companies to
travel websites for a wider product selection and greater convenience. If, however, traditional tour operators form alliances, or merge or consolidate among
themselves, or if one of our travel suppliers is acquired by another company with which we do not have a relationship, we may not be able to maintain our
strength in offering a wider selection of travel products and services as compared to traditional travel companies, and our business, financial condition and
results of operations may be adversely affected.
The Tourism Law may reduce the demand of organized tours and materially and adversely affect our business and results of operations.
On April 25, 2013, the Standing Committee of the National People’s Congress promulgated the Tourism Law, which became effective as of October 1,
2013. The Tourism Law imposes more stringent restrictions on tour operators. Pursuant to the Tourism Law, tour operators are prohibited from arranging
compulsory shopping or other activities which charge additional fees on top of the contract prices that the tourist has already paid, unless it is agreed upon by
both parties through consultation or requested by the tourist and does not affect the itinerary of other tourists. See “Item 4.B. Information on the Company—
Business Overview—PRC Regulation—Regulations on Travel Companies.” If our travel suppliers fail to comply with these restrictions, our reputation and
brand may be negatively affected. In addition, as a result of the Tourism Law, the commissions or rebates that tour operators receive from shopping
establishments have declined and organized tour prices have risen, which have reduced the demand for organized tours in the short term and may continue to
reduce the demand for organized tours in the future. If customers cannot adapt to the increased organized tour prices, our business and results of operations will
be materially and adversely affected.
We may not be able to prevent others from using our intellectual property, which may harm our business and expose us to litigation.
We regard our intellectual property as critical to our success. We rely primarily on a combination of copyright, software registration, trademark, trade
secret and unfair competition laws and contractual rights, such as confidentiality agreements with our employees and others, to protect our intellectual property
rights. The protection of intellectual property rights in China may not be as effective as that in the United States. Unauthorized use or other misappropriation of
our technologies would enable third parties to benefit from our technologies without paying us, or enable our competitors to offer travel products and services
that are comparable to or better than ours. From time to time, we may have to enforce our intellectual property rights through litigation. Such litigation may
result in substantial costs and diversion of resources and management attention. If we are not successful in protecting our intellectual property, our business,
financial condition and results of operations may be materially and adversely affected.
13
Claims by third parties that we infringe on their intellectual property rights could lead to government administrative actions and result in significant costs
and have a material adverse effect on our business, financial condition and results of operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon copyrights or other intellectual property rights
held by third parties. We have been in the past, and may be from time to time in the future, subject to legal proceedings, claims or government administrative
actions relating to alleged infringement on copyrights or other intellectual property rights held by third parties in relation to the content on our online platform or
intellectual property rights otherwise used in our operation. For example, our website may be found to contain pictures that infringe on copyrights of third
parties or hotel reviews that are third parties’ proprietary information. In addition, some of the software that we are currently using in our business may infringe
on third parties’ copyrights. If we are found to have infringed on the intellectual property rights of others, we may be subject to liability for our infringement
activities or may be prohibited from using such intellectual property, and we may incur licensing fees. Successful infringement or licensing claims made against
us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use of the intellectual
property in question. Moreover, regardless of whether we successfully defend against such claims, we could suffer negative publicity and our reputation could
be severely damaged. Any of these events could have a material and adverse effect on our business, financial condition and results of operations.
In addition, user-generated content on our online platform may contain or provide links to information that infringes on the copyrights or other
intellectual property rights of third parties or violates applicable rules or regulations in relation to censorship, or we may use the user-generated content in a way
that infringes on the rights of the users or third parties. Any claims, with or without merit, could be time-consuming to defend, result in litigation and divert
management’s attention and resources.
The successful operation of our business depends upon the performance and reliability of the Internet infrastructure and telecommunications networks in
China.
Our business depends on the performance and reliability of the Internet infrastructure and telecommunications networks in China. Almost all access to
the Internet is maintained through state-owned telecommunications operators under the administrative control and regulatory supervision of the Ministry of
Industry and Information Technology of the PRC, or the MIIT. In addition, the national networks in China are connected to the Internet through international
gateways controlled by the PRC government. These international gateways are the only channels through which domestic users can connect to the Internet. We
rely on a limited number of telecommunications service providers, primarily China Telecom and China Unicom, to provide us with data communications
capacity. We, our customers or travel suppliers, may not have access to alternative networks in the event of disruptions, failures or other problems with China’s
Internet infrastructure. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing
traffic on our online platform. However, we have no control over the costs of the services provided by telecommunications service providers. If the prices we
pay for telecommunications and Internet services rise significantly, our results of operations may be materially and adversely affected. If Internet access fees or
other charges to Internet users increase, the number of Internet users may decline and our business may be harmed. Moreover, if we are not able to renew
services agreements with the telecommunications carriers when they expire and are not able to enter into agreements with alternative carriers on commercially
reasonable terms or at all, the quality and stability of our online platform may be adversely affected.
We are subject to payment-related risks.
We enable our customers to make payments through our website by working with various third-party online payment processing service providers. As
we rely on third parties to provide payment processing services, including processing payments made with credit cards and debit cards, it could disrupt our
business if these companies become unwilling or unable to provide these services to us. We may be subject to human error, fraud and other illegal activities in
connection with third-party online payment services. If our data security systems are breached or compromised, we may lose our ability to accept credit and
debit card payments from our customers, and we may be subject to claims for damages from our customers and third parties, all of which could adversely and
materially affect our reputation as well as our results of operations.
14
If we fail to adopt new technologies or adapt our website online platform and management systems to changing user requirements, increasing traffic or
emerging industry standards, our business may be materially and adversely affected.
The online travel industry is subject to rapid technological changes. To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online platform. The online travel industry is also characterized by rapid technological evolution and changes
in customer requirements and preferences. Our success will depend, in part, on our ability to identify, develop, acquire or license leading technologies useful in
our business and respond to technological advances and emerging industry standards and practices in a cost-effective and timely manner. The development of
our online platform and other proprietary technology entails significant technical and business risks. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes could require substantial expenditures to modify or adapt our infrastructure. We
may not be able to use new technologies effectively or adapt our online platform, proprietary technologies and operating systems to the requirements of our
customers and travel suppliers or emerging industry standards. If we are unable to adapt in a cost-effective and timely manner to changing market conditions or
user requirements, whether for technical, legal, financial, or other reasons, our business may be materially and adversely affected.
Our business may be harmed if we are unable to upgrade our systems and infrastructure quickly enough to accommodate increasing traffic levels, or to
avoid obsolescence, or successfully integrate any newly developed or purchased technologies with our existing systems. Capacity constraints could cause
unanticipated system disruptions, slower response times, poor customer experience, impaired quality and speed of reservations and confirmations and delays in
reporting accurate financial and operating information. These factors could cause us to lose customers. Additionally, we will continue to upgrade and improve
our technology infrastructure to support our business growth. However, we cannot assure you that we will be successful in executing these system upgrades and
improvement strategies. In particular, our systems may experience interruptions during upgrades, and any new technologies or infrastructures may not be fully
integrated with our existing systems on a timely basis, or at all. If our existing or future technology infrastructure does not function properly, it could cause
system disruptions and slow response times that affect data transmission, which in turn could materially and adversely affect our business.
We are exposed to risks associated with online security.
The secure transmission of confidential information over the Internet is essential in maintaining customer confidence in us. We conduct a significant
portion of our transactions through our website. We utilize digital certificates to help us conduct secure communications and transactions. In addition, sensitive
customer information, such as password and payment information, is stored with encryption, and our data servers are secured with firewalls. However, advances
in technology or other developments could result in a compromise or breach of the technology that we use to protect customer and transaction data. Our security
measures may not be sufficient to prevent security breaches. Any failure or perceived failure by us to prevent information security breaches or to comply with
privacy policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable
information or other customer data, could cause our customers to lose trust in us and could expose us to legal claims.
Our use of open source software could adversely affect our ability to offer our products and services and subject us to possible litigation.
We use open source software in connection with our development of technology infrastructure. From time to time, companies that use open source
software have faced claims challenging the use of open source software and/or compliance with open source license terms. We could be subject to suits by
parties claiming ownership of what we believe to be open source software, or claiming noncompliance with open source licensing terms. Some open source
licenses require users who distribute software containing open source to make available all or part of such software, which in some circumstances could include
valuable proprietary code. While we monitor the use of open source software and try to ensure that none is used in a manner that would require us to disclose
our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open
source license terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could be harmful to
our business, results of operations or financial condition, and could help our competitors develop travel products and services that are similar to or better than
ours.
15
We may not be successful in pursuing strategic alliances and acquisitions, and future alliances and acquisitions may not bring us anticipated benefits.
Part of our growth strategy is the pursuit of strategic alliances and acquisitions. There can be no assurance that we will succeed in implementing this
strategy as it is subject to many factors which are beyond our control, including our ability to identify and successfully execute suitable acquisition opportunities
and alliances. Any future acquisitions, investments, and strategic alliances may expose us to new operational, regulatory and market risks, as well as risks
associated with additional capital requirements, including risks associated with unforeseen or hidden liabilities, diversion of management resources and costs of
integrating acquired businesses, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potentially significant loss of
investments. Any acquisitions we pursue could also create difficulties with integrating the technology of acquired businesses with our existing technology, and
employees of acquired businesses into the various departments and ranks in our company, and it could take substantial time and effort to integrate the business
processes being used in the acquired businesses with our existing business processes. Should we fail to integrate acquired companies efficiently, our earnings,
revenues, gross margins, operating margins and business operations could be negatively affected. Furthermore, acquired companies may not perform to our
expectations for various reasons, including legislative or regulatory changes that affect the products and services in which the acquired companies specialize and
the loss of key personnel and customer accounts. Any alliances we pursue could also subject us to a number of risks, including risks associated with sharing
proprietary information, non-performance by the third party and increased expenses in establishing new strategic alliances, any of which may materially and
adversely affect our business. We may also have limited ability to monitor or control the actions of these third parties and, to the extent any of these strategic
third parties suffer negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our
reputation by virtue of our association with any such third party.
We may not be able to identify suitable future acquisition or investment candidates or alliance partners. Moreover, there is no assurance that such
alliances or acquisitions will achieve our intended objectives or benefits. Even if we identify suitable candidates or partners, we may be unable to complete an
acquisition, investment or alliance on terms commercially acceptable to us. If we fail to identify appropriate candidates or partners, or complete desired
acquisitions, investments or alliances, we may not be able to implement our strategies effectively or efficiently, and our overall profitability and growth plans
may be adversely affected.
If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations or prevent
fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and adversely affected.
In connection with the audits of our consolidated financial statements as of and for the year ended December 31, 2013 and 2014, we and our
independent registered public accounting firm identified one material weakness in our internal control over financial reporting, as defined in the standards
established by the U.S. Public Company Accounting Oversight Board of the United States, or PCAOB. A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis. The material weakness identified related to the lack of sufficient financial reporting and
accounting personnel with appropriate knowledge of US GAAP and the SEC, reporting requirements to formalize key controls over financial reporting and to
prepare and review consolidated financial statements and related disclosures. The material weakness, if not timely remedied, may lead to significant
misstatements in our consolidated financial statements in the future. Following the identification of the material weakness, we have taken extensive measures to
remedy the material weakness. As of December 31, 2015, based on our management assessment on the performance of the above mentioned remediation
measures, we determined that the material weakness previously identified in our internal control over financial reporting had been remediated.
Since our initial public offering, we have become subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that we
include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning with our
annual report for the fiscal year ended December 31, 2015. In addition, our independent registered public accounting firm must report on the effectiveness of
our internal control over financial reporting.
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Our management has concluded that our internal control over financial reporting was effective as of December 31, 2015. See “Item 15. Controls and
Procedures.” Our independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial
reporting was effective in all material aspects as of December 31, 2015. However, if we fail to maintain the effectiveness of our internal control over financial
reporting, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the Sarbanes-
Oxley Act. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports. As a result, any failure to
maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in
turn could negatively impact the trading price of our ADSs. Furthermore, we may need to incur additional costs and use additional management and other
resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.
We have limited business insurance coverage in China.
Insurance companies in China offer limited business insurance products. Business disruption insurance is available to a limited extent in China, but we
have determined that the risks of disruption, the cost of such insurance and the difficulties associated with acquiring such insurance make it commercially
impractical for us to have such insurance. We maintain insurance coverage for travel company liabilities, but we do not maintain insurance coverage for
business disruptions and would have to bear the costs and expenses associated with any such events out of our own resources.
We may need additional capital, and financing may not be available on terms acceptable to us, or at all.
Although we believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated
cash needs for at least the next 12 months, we may require additional cash resources due to changed business conditions or other future developments, including
any marketing initiatives or investments we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to obtain a
credit facility or sell additional equity or debt securities. The sale of additional equity securities could result in dilution of our existing shareholders. The
incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our
operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.
We have granted share options, unvested restricted shares and restricted share units, and may grant share options and other share-based awards in the
future, which may materially increase our net loss.
We adopted an incentive compensation plan in 2008, or the 2008 Plan, which permits the granting of options to purchase our ordinary shares and
restricted shares. We also adopted a separate incentive compensation plan in 2014, or the 2014 Plan, which permits the granting of options to purchase our
ordinary shares, restricted shares and restricted share units. In particular, our 2014 Plan contains an evergreen provision which allows us to automatically
increase the maximum aggregate number of ordinary shares reserved under the 2014 Plan to 5% of the then-issued and outstanding shares on an as-converted
basis without shareholder approval, if and whenever the shares reserved in the 2014 Plan account for less than 1% of the total then-issued and outstanding
shares on an as-converted basis. For more details regarding the 2008 Plan and the 2014 Plan, see “Item 6.B. Directors, Senior Management and Employees—
Compensation.” As of March 31, 2016, there were options to acquire 10,766,805 ordinary shares outstanding under the 2008 Plan, and options to acquire
18,805,521 ordinary shares and 113,772 restricted shares outstanding under the 2014 Plan. In addition, we plan to grant employees share options and other
share-based compensation in the future. Expenses associated with share-based awards may materially impact our results of operations.
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Risks Related to Our Corporate Structure
Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to restrictions on
foreign investment in value-added telecommunications and travel companies in China. If the PRC government finds that the structure we have adopted for
our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including shutting down of our online
platform.
Foreign ownership of Internet-based businesses is subject to significant restrictions under current PRC laws and regulations. The PRC government
regulates Internet access, the distribution of online information and the conduct of online commerce through strict business licensing requirements and other
government regulations. These laws and regulations also include limitations on foreign ownership in PRC companies that provide Internet content distribution
services. Specifically, foreign investors are not allowed to own more than 50% of the equity interest in any entity conducting value-added telecommunications
business. The Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business issued by the
Ministry of Industry and Information Technology in July 2006, or the MIIT Circular, reiterated the regulations on foreign investment in telecommunications
business, which require foreign investors to set up foreign-invested telecom enterprises and obtain business operating licenses for Internet content provision, or
an ICP license to conduct any value-added telecommunications business in China. Under the MIIT Circular, a domestic company that holds an ICP license is
prohibited from leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources,
sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and
domain names that are used in the value-added telecommunications business must be owned by the domestic ICP license holder or its shareholders. Due to a
lack of interpretation from the MIIT, it is unclear what impact the MIIT Circular will have on us or other PRC Internet companies that have adopted the same or
similar corporate structures and contractual arrangements as ours. Nanjing Tuniu holds our ICP licenses, and owns the domain name used in our value-added
telecommunications business. Nanjing Tuniu is also the owner of all registered trademarks used in our value-added telecommunications business and is the
applicant of all the applications for trademark registration we have made.
We are a Cayman Islands company and our wholly owned PRC subsidiary, Beijing Tuniu Technology Co., Ltd., or Beijing Tuniu, is considered a
foreign invested enterprise. To comply with PRC laws and regulations, we conduct our operations in China through a series of contractual arrangements entered
into among Beijing Tuniu, Nanjing Tuniu, and the shareholders of Nanjing Tuniu. As a result of these contractual arrangements, we exert control over Nanjing
Tuniu and its subsidiaries and consolidate their results of operations in our financial statements under U.S. GAAP. For a detailed description of these contractual
arrangements, see “Item 4.C. Information on the Company—Organizational Structure.”
In the opinion of our PRC counsel, Fangda Partners, our current ownership structure, the ownership structure of our PRC subsidiaries and our
consolidated affiliated entities, each of the shareholders’ voting rights agreement, powers of attorney, equity interest pledge agreement and purchase option
agreement entered into among Beijing Tuniu, Nanjing Tuniu and the shareholders of Nanjing Tuniu, and the cooperation agreement between Beijing Tuniu and
Nanjing Tuniu, which establish our contractual arrangement with Nanjing Tuniu and its shareholders, and, except as otherwise disclosed in this annual report,
our business operations are not in violation of existing PRC laws, rules and regulations. However, we are advised by our PRC counsel, Fangda Partners, that
there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can be no assurance that
the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel stated above.
In or around September 2011, various media sources reported that the China Securities Regulatory Commission, or the CSRC, had prepared a report
proposing regulating the use of variable interest entity structures, such as ours, in industry sectors subject to foreign investment restrictions in China and
overseas listings by China-based companies. However, it is unclear whether the CSRC officially issued or submitted such a report to a higher level government
authority or what any such report provides, or whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if
adopted, what they would provide.
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If our ownership structure, contractual arrangements and business of our company, our PRC subsidiaries or our consolidated affiliated entities are
found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or approvals, the relevant
governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income or the income of our PRC
subsidiaries or consolidated affiliated entities, revoking the business licenses or operating licenses of our PRC subsidiaries or consolidated affiliated entities,
shutting down our servers or blocking our online platform, discontinuing or placing restrictions or onerous conditions on our operations, requiring us to undergo
a costly and disruptive restructuring, restricting or prohibiting our use of proceeds from our earlier initial public offering and the related concurrent private
placement as well as our subsequent private placement in December 2014 to finance our business and operations in China, and taking other regulatory or
enforcement actions that could be harmful to our business. Any of these actions could cause significant disruption to our business operations and severely
damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. If any of these
occurrences results in our inability to direct the activities of any of our consolidated affiliated entities that most significantly impact its economic performance,
and/or our failure to receive the economic benefits from any of our consolidated affiliated entities, we may not be able to consolidate the entity in our
consolidated financial statements in accordance with U.S. GAAP.
Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law and
how it may impact the viability of our current corporate structure, corporate governance and business operations.
The Ministry of Commerce, or MOC, published a discussion draft of its proposed Foreign Investment Law in January 2015 aiming to, upon its
enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-
foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary
regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with
prevailing international practice and legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.
Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in
determining whether a company is considered a foreign-invested enterprise, or FIE. The draft Foreign Investment Law specifically provides that entities
established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity established in a foreign jurisdiction would nonetheless be,
upon market entry clearance by the MOC, treated as a PRC domestic investor provided that entity is “controlled” by PRC entities and/or citizens. In this
connection, “control” is broadly defined in the draft law to cover the following summarized categories: (i) holding, directly or indirectly, 50% or more of the
equity interests or voting rights of the subject entity; (ii) holding less than 50% of the equity interests or voting rights of the subject entity but having the power
to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to materially influence the board,
shareholders’ meetings or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements,
over the subject entity’s operations, financial matters or other key aspects of business operations. Under the draft Foreign Investment Law, once an entity is
determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a “negative list,” to be separately issued by the State
Council at a later date, in the event that the FIE is engaged in an industry listed on the negative list. Unless the underlying business of the FIE falls within the
negative list, which calls for market entry clearance by the MOC, prior approval from the government authorities as mandated by the existing foreign
investment legal regime would no longer be required for establishment of the FIE.
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The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses
and permits in industries that are currently subject to foreign investment restrictions in China. See “—Risks Related to Our Corporate Structure—Substantial
uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to restrictions on foreign investment in
value-added telecommunications and travel companies in China. If the PRC government finds that the structure we have adopted for our business operations
does not comply with PRC laws and regulations, we could be subject to severe penalties, including the forced closure of our online platform” and “Item 4.C.
Information on the Company—Organizational Structure.” Under the draft Foreign Investment Law, variable interest entities that are controlled via contractual
arrangements would also be deemed FIEs, if they are ultimately “controlled” by foreign investors. Therefore, there is a risk that, for any company which invests
in an industry category that is on the “negative list” using a VIE structure established after the Foreign Investment Law takes effect the VIE structure would be
deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual
controlling person(s) is/are of foreign nationalities, then there is the risk that the variable interest entities will be treated as FIEs and any operation in industry
categories on the “negative list” without market entry clearance would possibly be considered as illegal. But as for investments in industry categories contained
in the negative list through VIE structures established before the Foreign Investment Law takes effect, there is no specific clause in the draft Foreign Investment
Law specifying how these investments will be treated. In accordance with an explanation on the draft Foreign Investment Law issued concurrently by the MOC,
the MOC is conducting further research and studying on this matter and will put forward disposition suggestions after soliciting public comments. The MOC
solicited comments on the draft Foreign Investment Law and substantial uncertainties exist with respect to its enactment timetable, interpretation and
implementation. Moreover, it is uncertain whether the value-added telecommunications and travel industries in which our variable interest entities operate will
be subject to the foreign investment restrictions or prohibitions set forth in the “negative list” to be issued by the State Council. If a final version of the Foreign
Investment Law and the “negative list” are promulgated and mandate further actions, such as MOC market entry clearance, to be completed by companies like
us, with existing VIE structures, we face uncertainties as to whether such clearance can be timely obtained, or at all. Any such development could materially
impact the viability of our current corporate structure, corporate governance and business operations in many aspects. In the event that a final version of the
Foreign Investment Law is enacted, we will conduct a full analysis of our corporate structure, corporate governance and business operations to assess our
conformity with the requirements set forth therein.
The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practices and increase our compliance
costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the
applicable FIEs. Aside from investment implementation report and investment amendment report that are required at each investment and alteration of
investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company
found to be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the
persons directly responsible may be subject to criminal liability.
We rely on contractual arrangements with Nanjing Tuniu and its shareholders for the operation of our business, which may not be as effective as direct
ownership. If Nanjing Tuniu or its shareholders fail to perform their obligations under these contractual arrangements, we may have to resort to litigation
or arbitration to enforce our rights, which may be time-consuming, unpredictable, expensive and damaging to our operations and reputation. If we are
unable to maintain effective control we would not be able to continue to consolidate the financial results of our consolidated affiliated entities with our
financial results.
Although we have been advised by our PRC counsel, Fangda Partners, that our contractual arrangements with Nanjing Tuniu and its shareholders did
not and does not result in any violation of current PRC laws, these contractual arrangements may not be as effective in providing control as direct ownership. If
Nanjing Tuniu or its shareholders fail to perform their obligations under the contractual arrangements, we may have to incur substantial costs and expend
additional resources to enforce such arrangements. We may also have to rely on legal remedies under contract law, including seeking specific performance or
injunctive relief and claiming damages, which we cannot assure you will be effective. For example, if the shareholders of Nanjing Tuniu refuse to transfer their
equity interests in Nanjing Tuniu to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if they otherwise act
in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. Furthermore, while the company chops
of Nanjing Tuniu are held by its legal and accounting departments, our ability to ensure its performance under the contractual agreements may be limited if we
are unable to secure control of the company chops in the event of a dispute with its management or shareholders, as many official documents require affixation
of company chops to become fully effective. If we were the controlling shareholder of Nanjing Tuniu with direct ownership, we would be able to exercise our
rights as shareholders to effect changes to its board of directors, which in turn could implement changes at the management and operational level.
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All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in the
PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal
procedures. There remain significant uncertainties regarding how our contractual arrangements would be interpreted under PRC laws and the ultimate outcome
of the resolution of disputes in relation to such contractual arrangements, should arbitration become necessary. The legal system in the PRC is not as developed
as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual
arrangements. Under PRC laws, if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only
enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the
event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over Nanjing Tuniu and its shareholders, and our
ability to conduct our business may be negatively affected. If we are unable to maintain effective control, we would not be able to continue to consolidate the
financial results of our consolidated affiliated entities with our financial results.
The shareholders of Nanjing Tuniu may have potential conflicts of interest with us, which may materially and adversely affect our business and financial
condition.
We have designated individuals who are PRC nationals to be the shareholders of Nanjing Tuniu. The equity interests of Nanjing Tuniu are held by
Messrs. Dunde Yu, Haifeng Yan, Tong Wang, Jiping Wang, Xin Wen, Yongquan Tan and Haifeng Wang. The interests of these individuals as the shareholders
of Nanjing Tuniu may differ from the interests of our company as a whole. These shareholders may breach, or cause Nanjing Tuniu to breach, the existing
contractual arrangements we have with them and Nanjing Tuniu, which would have a material and adverse effect on our ability to effectively control Nanjing
Tuniu. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or such conflicts
will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we
could exercise our purchase option under the purchase option agreement with these shareholders to request them to transfer all of their equity interests in
Nanjing Tuniu to a PRC entity or individual designated by us, to the extent permitted by PRC laws. We rely on Messrs. Dunde Yu and Haifeng Yan, who are
our founders, directors and beneficial owners, Messrs. Tong Wang, Jiping Wang, Xin Wen and Yongquan Tan, who are our beneficial owners and Mr. Haifeng
Wang, who is an employee of one of our shareholders, to abide by the PRC law. If we cannot resolve any conflict of interest or dispute between us and the
shareholders of Nanjing Tuniu, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial
uncertainty as to the outcome of any such legal proceedings.
Our contractual arrangements with Nanjing Tuniu and its shareholders may be subject to scrutiny by the PRC tax authorities, and a finding that we owe
additional taxes could substantially increase our consolidated net loss and reduce the value of your investment.
Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities.
We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among Beijing Tuniu, Nanjing
Tuniu and the shareholders of Nanjing Tuniu do not represent an arm’s-length transaction and adjust Nanjing Tuniu’s income in the form of a transfer pricing
adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by Nanjing
Tuniu, which could in turn increase its tax liabilities without reducing our tax liabilities. In addition, the PRC tax authorities may impose late payment fees and
other penalties to Nanjing Tuniu for under-paid taxes. Our consolidated net loss may be increased if our tax liabilities increase or if we are found to be subject to
late payment fees or other penalties.
If Nanjing Tuniu becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy its assets, which could materially
and adversely affect our business.
To comply with PRC laws and regulations relating to foreign ownership restrictions in the online value-added telecommunications business, we hold
our ICP license and operate our business through contractual arrangements with Nanjing Tuniu as well as its shareholders. As part of these arrangements,
Nanjing Tuniu holds assets that are important to the operation of our business.
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We do not have priority pledges or liens against Nanjing Tuniu’s assets. As a contractual and property right matter, this lack of priority pledges and
liens has remote risks. If Nanjing Tuniu undergoes an involuntary liquidation proceeding, third-party creditors may claim rights to some or all of its assets and
we may not have priority against such third-party creditors on Nanjing Tuniu’s assets. If Nanjing Tuniu liquidates, we may take part in the liquidation
procedures as a general creditor under the PRC Enterprise Bankruptcy Law and recover any outstanding liabilities owed by Nanjing Tuniu to Beijing Tuniu
under the cooperation agreement between them. To ameliorate the risks of an involuntary liquidation proceeding initiated by a third-party creditor, we closely
monitor the operations and finances of Nanjing Tuniu through carefully designed budgetary and internal controls to ensure that Nanjing Tuniu is well
capitalized and is highly unlikely to trigger any third party monetary claims in excess of its assets and cash resources. Furthermore, Beijing Tuniu has the
ability, if necessary, to provide financial support to Nanjing Tuniu to avoid such an involuntary liquidation.
If the shareholders of Nanjing Tuniu were to attempt to voluntarily liquidate Nanjing Tuniu without obtaining our prior consent, we could effectively
prevent such unauthorized voluntary liquidation by exercising our right to request Nanjing Tuniu’s shareholders to transfer all of their equity interests to a PRC
entity or individual designated by us in accordance with the purchase option agreement with the shareholders of Nanjing Tuniu, to the extent permitted by PRC
laws. In the event that the shareholders of Nanjing Tuniu initiate a voluntary liquidation proceeding without our authorization or attempt to distribute the
retained earnings or assets of Nanjing Tuniu without our prior consent, we may need to resort to legal proceedings to enforce the terms of the contractual
agreements. Any such legal proceeding may be costly and may divert our management’s time and attention away from the operation of our business, and the
outcome of such legal proceeding would be uncertain.
Risks Related to Doing Business in China
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as precedents. In
the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall
effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in
China. Our PRC subsidiaries and consolidated affiliated entities are subject to various PRC laws and regulations generally applicable to companies in China.
However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations
and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC administrative and
court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of
administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the PRC legal system is
based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a
result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the
scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory
environment in China could materially and adversely affect our business and impede our ability to continue our operations.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.
Our business operations are based in China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a
significant degree by economic, political and social conditions or government policies in China generally and by continued economic growth in China as a
whole.
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China’s economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of
development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since the late
1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of
improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition,
the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises
significant control over the PRC economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or companies.
While China’s economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various
sectors of the economy, and in the recent years, the growth has been slowing down. Some of the government measures may benefit the overall Chinese
economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control
over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher inflation, which
could adversely affect our financial condition and results of operations. For example, certain operating costs and expenses, such as employee compensation and
office operating expenses, may increase as a result of higher inflation.
The PRC government regulates travel and other related industries. If we fail to obtain or maintain all pertinent permits and approvals or if the PRC
government imposes more restrictions on these industries, our business may be adversely affected.
We are required to obtain applicable permits or approvals from regulatory authorities to conduct our business activities. See “Item 4.B. Information on
the Company—Business Overview—PRC Regulation.” If we fail to obtain or maintain any of the required permits or approvals in the future, we may be subject
to various penalties, such as fines or suspension of operations in these regulated businesses, which could severely disrupt our business operations. As a result,
our financial condition and results of operations may be adversely affected.
Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes. Such classification
would likely result in unfavorable tax consequences to us and our non-PRC shareholders and would have a material adverse effect on our results of
operations and the value of your investment.
Under the PRC Enterprise Income Tax Law, or the EIT Law, that became effective on January 1, 2008, an enterprise established outside the PRC with
a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise income tax purposes and is generally subject to a
uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the EIT Law, or the Implementation Rules, a “de facto
management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and
human resources, finances and properties of an enterprise. In addition, SAT Circular 82, which was issued in April 2009 by the State Administration of
Taxation, or the SAT, specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC
resident enterprises if all of the following conditions are met: (a) senior management personnel and core management departments in charge of the daily
operations of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval
by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and
shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights
habitually reside in the PRC. Further to SAT Circular 82, the SAT issued SAT Bulletin 45, which took effect on September 1, 2011, to provide more guidance
on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore-incorporated resident
enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of PRC resident enterprise status and administration on post-
determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise
groups, not those controlled by PRC individuals or foreign individuals like us, the determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may
reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the PRC resident enterprise status of offshore
enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
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We do not believe that Tuniu Corporation meets all of the conditions above and thus we do not believe that it is a PRC resident enterprise for PRC
enterprise income tax purposes, despite the fact that all of the members of our management team as well as the management team of Tuniu (HK) Limited are
located in China. However, if the PRC tax authorities determine that it is a PRC resident enterprise for PRC enterprise income tax purposes, a number of
unfavorable PRC tax consequences could follow. First, we will be subject to the uniform 25% enterprise income tax on our worldwide income, which could
materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Second, although dividends paid by
one PRC tax resident to another PRC tax resident should qualify as “tax-exempt income” under the EIT Law, we cannot assure you that such dividends will not
be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the PRC tax
authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are not controlled by any PRC enterprise or PRC
enterprise group and treated as PRC resident enterprises for PRC enterprise income tax purposes.
Under the EIT Law and its Implementation Rules, subject to any applicable tax treaty or similar arrangement between the PRC and our investors’
jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends from
PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business in the PRC, or which have
such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Any gain realized on the
transfer of American depositary shares or shares by such non-PRC resident enterprise investors is also subject to 10% PRC income tax if such gain is regarded
as income derived from sources within the PRC unless a tax treaty or similar arrangement otherwise provides. Under the PRC Individual Income Tax Law and
its implementation rules, dividends from sources within the PRC paid to foreign individual investors who are not PRC residents are generally subject to a PRC
withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of American depositary shares or shares are generally
subject to 20% PRC income tax, in each case, subject to any reduction or exemption set forth in applicable tax treaties and PRC laws. It is also unclear whether
dividends we pay with respect to our ordinary shares or ADSs, or the gain realized from the transfer of our ordinary shares or ADSs, would be treated as income
derived from sources within the PRC and as a result be subject to PRC income tax if we were considered a PRC resident enterprise, as described above. If PRC
income tax were imposed on gains realized through the transfer of our ADSs or ordinary shares or on dividends paid to our non-PRC resident investors, the
value of the investment in our ADSs or ordinary shares may be materially and adversely affected. Furthermore, our ADS holders whose jurisdictions of
residence have tax treaties or arrangements with China may not qualify for benefits under such tax treaties or arrangements.
We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of our operating company’s equity
interests. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue
in the future.
In connection with the EIT Law, the Ministry of Finance and the SAT jointly issued SAT Circular 59 in April 2009, and the SAT issued SAT Circular
698 in December 2009. Both SAT Circular 59 and Circular 698 became effective retroactively on January 1, 2008.
According to SAT Circular 698, where a non-PRC resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by
disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and the overseas holding company is located in a tax jurisdiction
that: (1) has an effective tax rate of less than 12.5% or (2) does not impose tax on foreign income of its residents, the non-PRC resident enterprise, being the
transferor, must report to the relevant tax authority of the PRC resident enterprise this Indirect Transfer. Using a “substance over form” principle, the PRC tax
authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of
reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%.
SAT Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a
price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income resulting from the
transaction. In addition, the PRC resident enterprise is supposed to provide necessary assistance to support the enforcement of SAT Circular 698.
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On March 28, 2011, the SAT released SAT Public Notice (2011) No. 24, or SAT Public Notice 24, to clarify several issues related to SAT Circular
698. SAT Public Notice 24 became effective on April 1, 2011. According to SAT Public Notice 24, the term “effective tax rate” refers to the effective tax rate
on the gain derived from disposition of the equity interests of an overseas holding company; and the term “does not impose income tax” refers to the cases
where the gain derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country/region where the
overseas holding company is a resident.
There is little guidance as to the application of SAT Circular 698. For example, while the term “Indirect Transfer” is not clearly defined, it is
understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct
contact with China. In addition, there are no formal declarations with regard to how to determine whether a foreign investor has adopted an abusive arrangement
in order to reduce, avoid or defer PRC tax. If any of the previous investments by non-PRC resident investors in our company were determined by the tax
authorities to lack reasonable commercial purpose, it is possible that the PRC tax authorities would pursue our offshore shareholders to conduct a filing
regarding our offshore restructuring transactions where non-PRC resident investors were involved and would request our PRC subsidiaries to assist in providing
such disclosures. In addition, if our offshore subsidiaries are deemed to lack substance, they could be disregarded by the PRC tax authorities. As a result, we and
our non-PRC resident investors may become at risk of being taxed under SAT Circular 698 and may be required to expend valuable resources to comply with
SAT Circular 698 or to establish that we and our non-PRC resident investors should not be taxed under SAT Circular 698, which may have a material adverse
effect on our financial condition and results of operations or the non-PRC resident investors’ investments in us.
By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity
interests in a PRC resident enterprise by a non-PRC resident enterprise. The PRC tax authorities have the discretion under SAT Circular 59 and SAT Circular
698 to make adjustments to the taxable capital gains based on the difference between the fair value of the equity interests transferred and the cost of investment.
Although we currently have no confirmed plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may
involve complex corporate structures. If we are considered a non-PRC resident enterprise under the EIT Law and if the PRC tax authorities make adjustments
under SAT Circular 59 or SAT Circular 698, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse
effect on our financial condition and results of operations.
The SAT further released its Bulletin on Several Issues Concerning Enterprise Income Taxation on Income Arising from the Indirect Transfers of
Property by Non-resident Enterprises (“SAT Bulletin 2015 No. 7” or “Bulletin 7”), which became effective on February 3, 2015. Bulletin 7 repealed the
relevant Indirect Transfer provisions contained in Circular 698 and set forth more detailed rules for the tax treatment of Indirect Transfers of equity interests in
PRC resident enterprises and other assets situated in China. Bulletin 7 abolished the previous mandatory reporting requirement for Indirect Transfers under
Circular 698, and provides that the parties to an Indirect Transfer transaction have the option to decide whether to report the Indirect Transfer to the competent
tax authorities. Applying a “substance over form” principle, when a non-resident enterprise structures an Indirect Transfer of an equity interest in a PRC resident
enterprise or other assets situated in China to avoid taxation under the EIT through arrangements lacking reasonable commercial purposes, the Indirect Transfer
will be re-characterized as a direct transfer. As a result, any gains derived from the Indirect Transfer may be subject to PRC withholding tax at a rate of up to
10%. Bulletin 7 provides de facto safe harbor treatment for situations in which a non-resident enterprise buys and then sells shares, in the public securities
markets, of an overseas-listed company that holds an equity interest in a PRC resident enterprise, and thereby realizes a capital gain. However, in order for the
safe harbor treatment to apply, both the purchase and sale must be conducted on the public securities markets so as to preclude market manipulation, and the
equity interests purchased and sold must be those in the same enterprise. When shares sold in the public securities markets were obtained before such shares
were listed on a public securities market or were not purchased through a public securities market, or when shares were purchased on a public market but are to
be sold through non-public markets, the safe harbor would not apply. There is uncertainty as to the interpretation and application of SAT Circular 698 and
Bulletin 7. If an Indirect Transfer occurs for us, we and our non-PRC resident investors may be at risk of being taxed under SAT Circular 698 and Bulletin 7,
and we may be required to expend valuable resources to comply with SAT Circular 698 and Bulletin 7 or to establish that we should not be taxed under SAT
Circular 698 and Bulletin 7.
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PRC regulations establish complex procedures for some acquisitions of PRC companies by foreign investors, which could make it more difficult for us to
pursue growth through acquisitions in China.
Six PRC regulatory agencies promulgated regulations effective in September 2006 that are commonly referred to as the M&A Rules, which were
amended on June 22, 2009, with such amendments becoming effective as of the same date. See “Item 4.B. Information on the Company—Business Overview—
PRC Regulation.” The M&A Rules establish procedures and requirements that could make some acquisitions of PRC companies by foreign investors more
time-consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a
foreign investor takes control of a PRC domestic enterprise. In addition, national security review rules issued by the PRC governmental authorities in 2011
require acquisitions by foreign investors of domestic companies engaged in military-related or certain other industries that are crucial to national security to be
subject to prior security review. Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if
certain thresholds are triggered. We may expand our business in part by acquiring complementary businesses. Complying with the requirements of the M&A
Rules, security review rules and other PRC regulations to complete such transactions could be time-consuming, and any required approval processes, including
obtaining approval from the MOC, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or
maintain our market share.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or
distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liabilities and penalties under PRC laws.
The PRC State Administration of Foreign Exchange, or the SAFE, promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control
on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014,
which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE in October, 2005. SAFE Circular 37 requires PRC residents
to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity for the purpose of overseas
investment and financing, with assets or equity interests of onshore companies or offshore assets or interests held by the PRC residents, referred to in SAFE
Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect
to the special purpose vehicle, such as increases or decreases in capital contributed by PRC residents, transfers or exchanges of shares, mergers, divisions, or
other material changes. The term “control” under SAFE Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights
acquired by the PRC residents in special purpose vehicles or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase, convertible
bonds or other arrangements.
If our shareholders or beneficial owners who are PRC citizens or residents do not complete their registration with the local SAFE branches, our PRC
subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be
restricted in our ability to contribute additional capital to our PRC subsidiaries. Moreover, failure to comply with the various SAFE registration requirements
described above could result in liabilities for our PRC subsidiaries under PRC laws for evasion of applicable foreign exchange restrictions, including (1) the
requirement by SAFE to return the foreign exchange remitted overseas within a period specified by SAFE, with a fine of up to 30% of the total amount of
foreign exchange remitted overseas and deemed to have been evasive and (2) in circumstances involving serious violations, a fine of no less than 30% of and up
to the total amount of remitted foreign exchange deemed evasive. Furthermore, the persons-in-charge and other persons at our PRC subsidiaries who are held
directly liable for the violations may be subject to criminal sanctions.
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SAFE Circular 37 provides that PRC residents include both PRC citizens, meaning any individual who holds a PRC passport or resident identification
card, and individuals who are non-PRC citizens but primarily reside in the PRC due to their economic ties to the PRC. We have requested all of our known
current shareholders and/or beneficial owners to disclose whether they or their shareholders or beneficial owners fall within the ambit of SAFE Circular 37 and
other related rules, and urged relevant shareholders and beneficial owners, upon learning they are PRC residents, to make the necessary applications, filings and
amendments as required under SAFE Circular 37 and other related rules. However, we cannot assure you that they did successfully amend their foreign
exchange registrations with the local SAFE branch in compliance with applicable laws after our initial public offering. In addition, we may not be informed of
the identities of all the PRC residents holding direct or indirect interests in our company, and we cannot compel our beneficial owners to comply with the
requirements of SAFE Circular 37. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC residents have complied
with and will in the future comply with our requests to make or obtain any applicable registrations or comply with other requirements required by SAFE
Circular 37 or other related rules. A failure by any of our current or future shareholders or beneficial owners who are PRC residents to comply with the SAFE
regulations may subject us to fines or other legal sanctions, restrict our cross-border investment activities, limit our PRC subsidiaries’ ability to make
distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, SAFE Circular 37 was recently promulgated and it is unclear how this circular and any future regulation concerning offshore or cross-
border transactions will be interpreted, amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect
our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange
activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of
operations. In addition, if we decide to acquire a PRC domestic company, either we or the owners of such company, as the case may be, may not be able to
obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to
implement our acquisition strategy and could adversely affect our business and prospects.
Failure to comply with PRC regulations regarding the registration requirements for share option plans may subject the PRC plan participants or us to fines
and other legal or administrative sanctions.
In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating
in Stock Incentive Plans of Overseas Publicly-Listed Companies, or the Stock Option Rules. Under the Stock Option Rules and other relevant rules and
regulations, PRC residents who participate in stock incentive plans in an overseas publicly-listed company are required to register with SAFE or its local
branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be
a PRC subsidiary of the overseas publicly-listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and
other procedures with respect to the stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted institution to handle
matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC
agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC
agent or the overseas entrusted institution or other material changes. See “Item 4.B. Information on the Company—Business Overview—PRC Regulation—
Regulations on Employee Stock Option Plans.”
We and our PRC employees who have been granted share options are subject to these regulations and Beijing Tuniu as an agent has registered with the
Beijing Branch of SAFE in connection with the 2008 Plan and the 2014 Plan. We have advised our employees and directors participating in our share incentive
plans to handle foreign exchange matters in accordance with the Stock Option Rules. However, we cannot assure you that the share option holders can
successfully register with SAFE in full compliance with the Stock Option Rules for material changes of the granted share options. Failure of our PRC share
option holders or restricted shareholders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit
our ability to contribute additional capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us, or otherwise materially
adversely affect our business.
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PRC regulation of direct investment and loans by offshore holding companies to PRC entities and governmental control of currency conversion may delay
or limit us from using the proceeds of our financing activities, including our initial public offering, to make additional capital contributions or loans to our
PRC subsidiaries.
Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries, including from the proceeds of our earlier initial public
offering and concurrent private placement as well as our subsequent private placements, are subject to PRC laws and regulations. Under PRC laws and
regulations, we are permitted to utilize such proceeds to fund our existing PRC subsidiaries only through loans or capital contributions or to establish new PRC
subsidiaries, subject to applicable government registration and approval requirements. None of our loans to a PRC subsidiary can exceed the difference between
its total amount of investment and its registered capital approved under relevant PRC laws, and the loans must be registered with the local branch of SAFE. Our
capital contributions to our PRC subsidiaries or establishment of new PRC subsidiaries must be approved by the MOC or its local counterpart. We cannot assure
you that we will be able to complete the necessary registration or obtain the necessary approval on a timely basis, or at all. If we fail to complete the necessary
registration or obtain the necessary approval, our ability to make loans or capital contributions to our PRC subsidiaries may be negatively affected, which could
adversely affect our PRC subsidiaries’ liquidity and their ability to fund their working capital and expansion projects and meet their obligations and
commitments.
In August 2008, SAFE promulgated a SAFE Circular 142 regulating the conversion by a foreign-invested enterprise of foreign currency registered
capital into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular 142 provides that the Renminbi capital converted from foreign
currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government
authority and unless otherwise provided by law, such Renminbi capital may not be used for equity investments in the PRC. Although on July 4, 2014, the SAFE
issued the Circular of the SAFE on Relevant Issues Concerning the Pilot Reform in Certain Areas of the Administrative Method of the Conversion of Foreign
Exchange Funds by Foreign-invested Enterprises, or SAFE Circular 36, which launched a pilot reform of the administration of the settlement of the foreign
exchange capitals of foreign-invested enterprises in certain designated areas from August 4, 2014 and some of the restrictions under SAFE Circular 142 will not
apply to the settlement of the foreign exchange capitals of the foreign-invested enterprises established within the designate areas and such enterprises are
allowed to use its Renminbi capital converted from foreign exchange capitals to make equity investment, our PRC subsidiary is not established within the
designated areas. On March 30, 2015, SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular
142 and Circular 36 on June 1, 2015. Circular 19 allows foreign-invested enterprises to make equity investments by using Renminbi fund converted from
foreign exchange capital. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted
from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. In
addition, SAFE strengthened its oversight of the flow and use of the Renminbi capital converted from foreign currency registered capital of a foreign-invested
company. The business scopes of Beijing Tuniu and Tuniu (Nanjing) Information Technology Co., Ltd. include research and development of computer
software, network information technology products, computer application systems, e-commerce systems, network security systems and computer system
integration; technology services, consulting and transfers; sales of self-developed products; investment consulting; business information consulting; and
conference services and public relations advice. Beijing Tuniu and Tuniu (Nanjing) Information Technology Co., Ltd. may only use Renminbi converted from
foreign exchange capital contribution for activities within their respective approved business scope. In addition, the use of such Renminbi capital may not be
altered without SAFE approval, and such Renminbi capital may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been
used. Violations of these Circulars could result in severe monetary or other penalties. If we convert the net proceeds we receive from our earlier initial public
offering and the concurrent private placement as well as our subsequent private placement into Renminbi pursuant to these Circulars, our use of Renminbi funds
for general corporate purposes will be within the business scopes of our PRC subsidiaries. However, we may not be able to use such Renminbi funds to make
equity investments in the PRC through our PRC subsidiaries.
Furthermore, SAFE promulgated a SAFE Circular 45 in November 2011, which, among other things, restricts a foreign-invested enterprise from using
Renminbi converted from its registered capital to provide entrusted loans or repay loans between non-financial enterprises. Circular 45 was abolished on March
19, 2015. These SAFE Circulars may significantly limit our ability to use Renminbi converted from the net proceeds of our earlier financing activities to fund
establishment of new PRC subsidiaries by Beijing Tuniu or Tuniu (Nanjing) Information Technology Co., Ltd. to invest in or acquire any other PRC companies,
or to establish new PRC consolidated affiliated entities.
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Our PRC subsidiaries are subject to restrictions on paying dividends or making other payments to us, which may restrict our ability to satisfy our liquidity
requirements.
We are a holding company incorporated in the Cayman Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to
satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any,
determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their
respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital.
Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their
discretion. These reserves are not distributable as cash dividends. Furthermore, if our PRC subsidiaries incur debt on their own behalf in the future, the
instruments governing the debt may restrict their ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to
adjust our taxable income under the contractual arrangements among Beijing Tuniu, Nanjing Tuniu and the shareholders of Nanjing Tuniu in a manner that
would materially and adversely affect Beijing Tuniu’s ability to pay dividends and other distributions to us. Any limitation on the ability of our subsidiaries to
distribute dividends to us or on the ability of Nanjing Tuniu to make payments to us may restrict our ability to satisfy our liquidity requirements.
We may not be able to obtain certain treaty benefits on dividends paid to us by our PRC subsidiaries through our Hong Kong subsidiary.
Under the EIT Law, dividends generated from retained earnings after January 1, 2008 from a PRC company and distributed to a foreign parent
company are subject to a withholding tax rate of 10% unless the foreign parent’s jurisdiction of incorporation has a tax treaty with China that provides for a
preferential withholding arrangement. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the
Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, or the Hong Kong Tax Treaty, which became effective on
December 8, 2006, a company incorporated in Hong Kong, such as Tuniu (HK) Limited, will be subject to withholding income tax at a rate of 5% on dividends
it receives from its PRC subsidiaries, if it holds a 25% or more interest in that particular PRC subsidiary, or 10% if it holds less than a 25% interest in that
subsidiary. However, the SAT promulgated SAT Circular 601 on October 27, 2009, which provides that tax treaty benefits will be denied to “conduit” or shell
companies without business substance, and that “substance over form” principles will be used to determine beneficial ownership for purposes of receiving tax
treaty benefits. On June 29, 2012, the SAT further issued the Announcement of the SAT regarding Recognition of “Beneficial Owner” under Tax Treaties, or
Announcement 30, which provides that a comprehensive analysis should be made when determining the beneficial owner status based on various factors
supported by various types of documents including the articles of association, financial statements, records of cash movements, board meeting minutes, board
resolutions, staffing and materials, relevant expenditures, functions and risk assumption as well as relevant contracts and other information. As a result, although
our PRC subsidiaries, Beijing Tuniu and Tuniu (Nanjing) Information Technology Co., Ltd., are currently wholly owned by our Hong Kong subsidiary, Tuniu
(HK) Limited, we cannot assure you that we would be entitled to the tax treaty benefits and enjoy the favorable 5% rate applicable under the Hong Kong Tax
Treaty. If Tuniu (HK) Limited is not recognized as the beneficial owner of the dividends paid to it by Beijing Tuniu or Tuniu (Nanjing) Information Technology
Co., Ltd., such dividends will be subject to a normal withholding tax of 10% as provided by the EIT Law.
Discontinuation or revocation of any of the preferential tax treatments and government subsidies or imposition of any additional taxes or surcharges could
adversely affect our financial condition and results of operations.
Our PRC subsidiaries are incorporated in the PRC and governed by applicable PRC tax laws and regulations. The EIT Law and its Implementation
Rules have adopted a uniform statutory enterprise income tax rate of 25% to all enterprises in China, including foreign-invested enterprises. The EIT Law and
its Implementation Rules also permit qualified “high and new technology enterprises,” or HNTEs, to enjoy a preferential enterprise income tax rate of 15% upon
filing with the relevant tax authorities. The qualification as a HNTE is generally effective for a term of three years and the renewal of such qualification is
subject to review by the relevant authorities in China. Nanjing Tuniu obtained its HNTE certificate in 2010 with a valid period of three years and successfully
renewed such certificate in December 2013 for additional three years. Therefore, Nanjing Tuniu is eligible to enjoy a preferential tax rate of 15% from 2013 to
2015 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant EIT filing procedures
with the relevant tax authority. If Nanjing Tuniu fails to maintain its HNTE qualification or renew its qualification when its current term expires, its applicable
enterprise income tax rate may increase to 25%, which could have an adverse effect on our financial condition and results of operations.
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In addition, our PRC subsidiaries have received various financial subsidies from PRC local government authorities. Preferential tax treatments and
financial subsidies are subject to review and may be adjusted or revoked at any time in the future. The discontinuation of any preferential tax treatments or
financial subsidies or imposition of any additional taxes or surcharges could adversely affect our financial condition and results of operations.
Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.
We generate all of our revenues and incur substantially all of our expenses in Renminbi, and substantially all of our sales and supply contracts are
denominated in Renminbi. As a result, fluctuations in the exchange rates between the U.S. dollar and Renminbi will affect the relative purchasing power in
Renminbi terms of our U.S. dollar assets and the proceeds received from our earlier initial public offering, related concurrent private placement and our
subsequent private placements which took place in December 2014 and May 2015. As the functional currency for our PRC subsidiaries and affiliated PRC
entities is Renminbi, fluctuations in the exchange rates may also cause us to incur foreign exchange losses on any foreign currency holdings they may have. In
addition, appreciation or depreciation in the value of Renminbi relative to the U.S. dollar would affect our financial results in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations. If we decide to convert our Renminbi into U.S. dollars for the purpose of making
payments for dividends on our ordinary shares or for other business purposes, appreciation of U.S. dollar against Renminbi would have a negative effect on the
U.S. dollar amount available to us.
The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by
China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the Renminbi
to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this
appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has
fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may
impact the exchange rate between the Renminbi and the U.S. dollar in the future. Any significant appreciation or depreciation of the Renminbi may materially
and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the
extent that we need to convert the U.S. dollars we received from our initial public offering into Renminbi to pay our operating expenses, any appreciation of the
Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, a significant
depreciation of the Renminbi against the U.S. dollar may significantly reduce the amount of the U.S. dollar equivalent of our earnings, which in turn could
adversely affect the price of our ADSs.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any
hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future,
the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency
exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currencies. As a result,
fluctuations in exchange rates may have a material adverse effect on your investment.
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The approval of the China Securities Regulatory Commission may have been required in connection with our earlier initial public offering under a
regulation adopted in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval.
Six PRC regulatory agencies, including the China Securities Regulatory Commission, or the CSRC, promulgated the Regulations on Mergers and
Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was subsequently amended.
The M&A Rules, among other things, require offshore special purpose vehicles controlled by PRC companies or individuals formed for the purpose of an
overseas listing of such PRC companies’ or individuals’ interests in PRC domestic companies to obtain the CSRC’s approval prior to listing their securities on
an overseas stock exchange. The application of this regulation remains unclear. Our PRC counsel, Fangda Partners, has advised us that, based on its
understanding of the current PRC laws, rules and regulations, we are not required to submit an application to the CSRC for its approval of the listing and trading
of our ADSs on the NASDAQ Global Market, because:
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(cid:120)
(cid:120)
the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like our initial public offering are subject to
this regulation;
our wholly owned PRC subsidiaries were established by means of foreign direct investment, rather than through a merger or acquisition of
domestic companies, as defined under the M&A Rules; and
there is no provision in the M&A Rules that explicitly classifies contractual arrangements as a type of transaction subject to the M&A Rules.
There is uncertainty as to how this regulation will be interpreted or implemented. If it is determined that the CSRC approval was required for our initial
public offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek the CSRC’s approval for our initial public offering.
These sanctions may include fines and penalties on our operations in the PRC, delays or restrictions on the repatriation of the proceeds from our initial public
offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiaries, or other actions that could have a
material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs.
Online payment systems in China are at an early stage of development and may restrict our ability to expand our online business.
Online payment systems in China are at an early stage of development. Although major Chinese banks are instituting online payment systems, these
systems are not as widely acceptable to consumers in China as in the United States and other developed countries. The lack of wide acceptance of online
payment systems and concerns regarding the adequacy of system security may limit the number of online commercial transactions that we can service. If online
payment services and their security capabilities are not significantly enhanced, our ability to grow our online business may be limited.
The Internet market has not been proven as an effective commercial medium in China. The Internet penetration rate in China is lower than those in the
United States and other developed countries. Our future results of operations from online business will depend substantially upon the increased use and
acceptance of the Internet for distribution of products and services and facilitation of commerce in China.
The Internet may not become a viable commercial medium in China for various reasons in the foreseeable future. More salient impediments to Internet
development in China include:
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consumer dependence on traditional means of commerce;
inexperience with the Internet as a sales and distribution channel;
inadequate development of the necessary infrastructure;
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concerns about security, reliability, cost, ease of deployment, administration and quality of service associated with conducting business and
settling payment over the Internet;
inexperience with credit card usage or with other means of electronic payment; and
limited use of personal computers.
If the Internet is not widely accepted as a medium for online commerce in China, our ability to grow our online business would be impeded.
Implementation of laws and regulations relating to data privacy in China could adversely affect our business.
Certain data and services collected, provided or used by us or provided to and used by us are currently subject to regulation in certain jurisdictions,
including China. The PRC Constitution states that PRC laws protect the freedom and privacy of communications of citizens and prohibit infringement of such
basic rights, and the PRC Contract Law prohibits contracting parties from disclosing or misusing the trade secrets of the other party. Further, companies or their
employees who illegally trade or disclose customer data may face criminal charges. Although the definition and scope of “privacy” and “trade secret” remain
relatively ambiguous under PRC laws, growing concerns about individual privacy and the collection, distribution and use of information about individuals have
led to national and local regulations that could increase our expenses.
In December 2012, the Standing Committee of the National People’s Congress enacted the Decision to Enhance the Protection of Network
Information, or the Information Protection Decision, to further enhance the protection of users’ personal information in electronic form. The Information
Protection Decision provides that Internet information services providers must expressly inform their users of the purpose, manner and scope of the collection
and use of users’ personal information by Internet information services providers, publish the Internet information services providers standards for their
collection and use of users’ personal information, and collect and use users’ personal information only with the consent of the users and only within the scope of
such consent. The Information Protection Decision also mandates that Internet information services providers and their employees keep users’ personal
information that they collect strictly confidential, and that they must take such technical and other measures as are necessary to safeguard the information
against disclosure, damages and loss. Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s
Congress in August 2015 and becoming effective in November 2015, any internet service provider that fails to fulfill the obligations related to internet
information security administration as required by applicable laws and refuses to rectify upon orders, shall be subject to criminal penalty for the result of (i) any
dissemination of illegal information in large scale; (ii) any severe effect due to the leakage of the client’s information; (iii) any serious loss of criminal evidence;
or (iv) other severe situation, and any individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii)
steals or illegally obtain any personal information, shall be subject to criminal penalty in severe situation. Compliance with current regulations and regulations
that may come into effect in these areas may increase our expenses related to regulatory compliance, which could have an adverse effect on our financial
condition and results of operations.
Regulation and censorship of information distribution over the Internet in China may adversely affect our business, and we may be liable for information
displayed on, retrieved from or linked to our website.
The PRC government has adopted regulations governing Internet access and the distribution of information over the Internet. Under these
regulations, Internet content providers and Internet publishers are prohibited from posting or displaying over the Internet content that, among other things,
violates PRC laws and regulations, impairs the national dignity of China or the public interest, or is reactionary, obscene, superstitious, fraudulent or
defamatory. Failure to comply with these regulations may result in the revocation of licenses to provide Internet content and other licenses, the closure of the
concerned websites. A website operator may also be held liable for such censored information displayed on or linked to its website. For a detailed discussion,
see “Item 4.B. Information on the Company—Business Overview—PRC Regulation—Regulations on Information Security and Censorship.” We have a team
dedicated to screening and monitoring content published on our online platform and removing prohibited content. However, we may have difficulty identifying
and removing all illegal content displayed on or linked to our website, which could expose us to the penalties described above.
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Increases in labor costs in the PRC may adversely affect our business and results of operations.
The economy of China has been experiencing increases in inflation and labor costs in recent years. As a result, the average wage in the PRC is
expected to continue to grow. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pensions, housing
fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of
our employees. The relevant government agencies may examine whether an employer has made adequate payments of the requisite statutory employee benefits,
and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. If the relevant PRC authorities
determine that we shall make supplemental social insurance and housing fund contributions and that we are subject to fines and legal sanctions, our business,
financial condition and results of operations may be adversely affected. We expect that our labor costs, including wages and employee benefits, will continue to
increase. Unless we are able to pass on these increased labor costs to our customers by increasing the prices of our products and services, our financial condition
and results of operations may be materially and adversely affected.
We face certain risks relating to the real properties that we lease.
We lease real properties from third parties primarily for our office use in the PRC. Our leasehold interests in a number of these leased properties may
be defective as a result of the lessors’ lack of proper title or right to lease. As a result, we cannot assure you that our leasehold interests will not be challenged. In
addition, we have not registered the vast majority of our lease agreements with the relevant PRC governmental authorities as required by PRC law, and although
failure to do so does not in itself invalidate the leases, we may not be able to defend these leases against bona fide third parties. As of the date of this annual
report, we are not subject to any actions, claims or investigations pending or threatened in writing by government authorities or third parties with respect to
defects in our leased properties. However, if third parties who purport to be property owners or beneficiaries of the mortgaged properties challenge our right to
lease these properties, we may not be able to protect our leasehold interests and may be ordered to vacate the affected premises, which could materially and
adversely affect our business and results of operations.
The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as
such, you are deprived of the benefits of such inspection.
Auditors of companies that are registered with the SEC and traded publicly in the United States, including our independent registered public accounting
firm, must be registered with the Public Company Accounting Oversight Board (United States), or PCAOB, and are required by the laws of the United States to
undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because our auditor is
located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC
authorities, our auditor is not currently inspected by the PCAOB. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on
Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production
and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC,
respectively. PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that
are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.
This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors
operating in China, including our auditor. As a result, investors may be deprived of the benefits of PCAOB inspections. The inability of the PCAOB to conduct
inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared
to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the
quality of our financial statements.
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Additional remedial measures could be imposed on certain PRC-based accounting firms, including our independent registered public accounting firm, in
administrative proceedings instituted by the SEC, as a result of which our financial statements may be determined to not be in compliance with the
requirements of the Exchange Act, if at all.
In December 2012, the SEC brought administrative proceedings against the PRC-based affiliates of the Big Four accounting firms, including our
independent registered public accounting firm, alleging that they had violated U.S. securities laws by failing to provide audit work papers and other documents
related to certain other PRC-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring
and suspending these accounting firms from practicing before the SEC for a period of six months. The decision was neither final nor legally effective until
reviewed and approved by the SEC, and on February 12, 2014, the PRC-based accounting firms appealed to the SEC against this decision. In February 2015,
each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to
practice before the SEC. The settlement requires the firms to follow detailed procedures to seek to provide the SEC with access to such firms’ audit documents
via the CSRC. If the firms do not follow these procedures or if there is a failure in the process between the SEC and the CSRC, the SEC could impose penalties
such as suspensions, or it could restart the administrative proceedings.
In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major
PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being
determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the
proceedings against these audit firms may cause investor uncertainty regarding PRC-based, United States-listed companies and the market price of our ADSs
may be adversely affected.
If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely
find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be
in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the Nasdaq
Global Market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.
Risks Related to Our ADSs
The trading prices of our ADSs have fluctuated and may be volatile.
The trading prices of our ADSs have fluctuated since we first listed our ADSs. From the time our ADSs became listed on NASDAQ on May 9, 2014
through April 22, 2016, the trading price of our ADSs has ranged from US$8.99 to US$24.00 per ADS, and the last reported trading price on April 22, 2016 was
US$11.55 per ADS. The prices of our ADSs may continue to fluctuate because of broad market and industry factors, like the performance and fluctuation of the
market prices of other companies with business operations located mainly in China that have listed their securities in the United States. The widespread negative
publicity of alleged fraudulent accounting practices and poor corporate governance of certain U.S. public companies with operations in China in recent years
were believed to have negatively affected investors’ perception and sentiment towards companies with connection with China, which significantly and
negatively affected the trading prices of some companies’ securities listed in the U.S. Any similar negative publicity or sentiment may affect the performances
of our ADSs. The securities of some PRC companies that have listed their securities on U.S. stock markets have experienced significant volatility. The trading
performances of these PRC companies’ securities after their offerings may affect the attitudes of investors toward PRC companies listed in the United States in
general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. The trading prices of our ADSs
may also be affected by changes in the U.S. stock markets in general.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations,
including the following:
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the financial projections that we may choose to provide to the public, any changes in those projections or our failure for any reason to meet those
projections;
variations in our revenues, net income and cash flow;
announcements of new investments, acquisitions, strategic partnerships, or joint ventures;
announcements of new products, services and expansions by us or our competitors;
changes in financial estimates by securities analysts;
additions or departures of key personnel;
release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;
potential litigation or regulatory investigations; and
fluctuations in market prices for our products or services.
Any of these factors may result in large and sudden changes in the volume and price at which our ADSs trade.
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our
ADSs, the market price for our ADSs and trading volume could decline.
The trading market for our ADSs will be influenced by research or reports that securities or industry analysts publish about our business. If one or more
analysts who cover us downgrade our ADSs, or publish unfavorable research about us, the market price for our ADSs would likely decline. Failure to meet
expectations driven by analyst research or reports, even by aggressive research or reports, may cause the market price of our ADSs to decline. If one or more of
these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market
price or trading volume for our ADSs to decline.
Our dual class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing
any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares are entitled to one vote
per share, while holders of Class B ordinary shares are entitled to ten votes per share, with Class A and Class B ordinary shares voting together as one class on
all matters subject to a shareholders’ vote. Due to the disparate voting powers attached to these two classes of ordinary shares, holders of our Class B ordinary
shares collectively beneficially owned approximately 4.6% of our outstanding ordinary shares as of March 31, 2016, representing 32.5% of our total voting
power. Currently, our directors and officers beneficially own an aggregate of 75.5% of our outstanding shares representing 82.7% of our total voting power.
As a result of the dual class share structure and the concentration of ownership, holders of our Class B ordinary shares have substantial influence over
our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant
corporate actions. They may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay
or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of
our company and may reduce the price of our ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others
from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.
For more information regarding our principal shareholders and their affiliated entities, see “Item 7.A. Major Shareholders and Related Party Transactions—
Major Shareholders.”
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The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.
Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of
our ADSs and could materially impair our ability to raise capital through equity offerings in the future. Shares held by our existing shareholders may be sold in
the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and any applicable lock-up agreements. As of March
31, 2016, there were a total of 30,863,638 ADSs (equivalent to 92,590,914 Class A ordinary shares) outstanding. We cannot predict what effect, if any, market
sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price
of our ADSs. In addition, certain holders of our Class B ordinary shares are entitled to certain registration rights in the event that specified conditions are met,
including demand registration rights, piggyback registration rights, and Form F-3 or Form S-3 registration rights. Registration of these shares under the
Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the
registration. Sales of these registered shares in the public market, or the perception that such sales could occur, could cause the price of our ADSs to decline.
We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse United States
federal income tax consequences to United States investors in the ADSs or ordinary shares.
Under United States federal income tax law, we will be classified as a “passive foreign investment company,” or PFIC, for any taxable year, if either
(a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (as determined on
the basis of a quarterly average) during such year produce or are held for the production of passive income (the “asset test”). Although the law in this regard is
unclear, we treat Nanjing Tuniu and its subsidiaries as being owned by us for United States federal income tax purposes, not only because we exercise effective
control over their operations, but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating
results in our consolidated financial statements. If it were determined that we are not the owner of our consolidated affiliated entities for United States federal
income tax purposes, our risk of being classified as a PFIC may substantially increase. Assuming that we are the owner of Nanjing Tuniu and its subsidiaries for
United States federal income tax purposes, and based upon our income and assets and the value of our ADSs and ordinary shares, we do not believe that we
were a PFIC for the taxable year ended December 31, 2015 and do not anticipate becoming a PFIC in the foreseeable future.
While we do not anticipate becoming a PFIC in the foreseeable future, no assurance can be given in this regard because the determination of whether
we will be or become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, on the composition of our income and assets. Fluctuations
in the market price of our ADSs may cause us to become a PFIC for the current or subsequent taxable years because the value of assets for the purpose of the
asset test may be determined by reference to the market price of our ADSs from time to time (which may be volatile). The composition of our income and assets
may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce passive income
significantly increase relative to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash
for active purposes, our risk of becoming classified as a PFIC may substantially increase. In addition, because there are uncertainties in the application of the
relevant rules, it is possible that the Internal Revenue Service may challenge our classification of certain income and assets as non-passive or our valuation of
our tangible and intangible assets, each of which may result in our becoming a PFIC for the current or subsequent taxable years.
If we are classified as a PFIC in any taxable year, a U.S. Holder (as defined in “Item 10.E. Additional Information—Taxation—United States Federal
Income Tax Considerations”) may incur significantly increased United States federal income tax on gain recognized on the sale or other disposition of the ADSs
or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution”
under the United States federal income tax rules, and such U.S. Holders may be subject to burdensome reporting requirements. Further, if we are classified as a
PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years
during which such U.S. Holder holds our ADSs or ordinary shares. For more information, see “Item 10.E. Additional Information—Taxation—United States
Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”
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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are
incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles
of association, the Companies Law of the Cayman Islands (2013 Revision) and the common law of the Cayman Islands. The rights of shareholders to take
actions against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large
extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial
precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on
a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly
established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less
developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of
corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal
court of the United States.
The Cayman Islands courts are also unlikely:
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to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and
to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws
that are penal in nature.
There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in
certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management,
members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a
discussion of significant differences between the provisions of the Companies Law of the Cayman Islands (2013 Revision) and the laws applicable to companies
incorporated in the United States and their shareholders, see “Item 10.B. Additional Information—Memorandum and Articles of Association—Differences in
Corporate Law.”
Judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and all of our assets are located outside of the United States. Our current operations are based in China. In addition,
some of our current directors and executive officers are nationals and residents of countries other than the United States. Substantially all of the assets of these
persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the
United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are
successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the
assets of our directors and officers.
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The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your Class A
ordinary shares.
Holders of our ADSs are only able to exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the
provisions of the deposit agreement. Under the deposit agreement, holders of our ADSs must vote by giving voting instructions to the depositary. Upon receipt
of those voting instructions, the depositary will vote the underlying Class A ordinary shares in accordance with those instructions. Holders of our ADSs are not
able to directly exercise their right to vote with respect to the underlying shares unless they withdraw the shares. Under our amended and restated memorandum
and articles of association, the minimum notice period required for convening a general meeting is 14 calendar days. When a general meeting is convened,
holders of our ADSs may not receive sufficient advance notice to withdraw the shares underlying their ADSs to allow them to vote with respect to any specific
matter. If we ask for instructions from the holders of our ADSs, the depositary will notify the holders of our ADSs of the upcoming vote and will arrange to
deliver our voting materials to them. We cannot assure holders of our ADSs that they will receive the voting materials in time to ensure that they can instruct the
depositary to vote their shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of
carrying out voting instructions. This means that holders of our ADSs may not be able to exercise their right to vote and may have no legal remedy if the shares
underlying their ADSs are not voted as requested.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to
United States domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in
the United States that are applicable to U.S. domestic issuers, including:
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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;
the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the
Exchange Act;
the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders
who profit from trades made in a short period of time; and
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 publish our results on a
quarterly basis as press releases, distributed pursuant to the rules and regulations of the NASDAQ Global Market. Press releases relating to financial results and
material events are also furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC is less extensive and less
timely as compared to that required to be filed with the SEC by United States domestic issuers. As a Cayman Islands company listed on the NASDAQ Global
Market, we are subject to the NASDAQ Global Market corporate governance listing standards. However, NASDAQ Global Market rules permit a foreign
private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, our home
country, may differ significantly from the NASDAQ Global Market corporate governance listing standards. See “Item 16G. Corporate Governance.” Although
we do not currently plan to further utilize the home country exemption for corporate governance matters, to the extent that we choose to do so in the future, our
shareholders may be afforded less protection than they otherwise would under the NASDAQ Global Market corporate governance listing standards applicable to
U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a
United States domestic issuer.
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Because we do not expect to pay dividends in the foreseeable future, ADS holders must rely on price appreciation of our ADSs for return on their
investment.
We do not anticipate that we will pay any cash dividends on our ordinary shares, or indirectly on our ADSs, for the foreseeable future. Any
determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our results of operations, financial condition,
contractual restrictions relating to indebtedness we may incur, restrictions imposed by applicable law and other factors our board of directors deem relevant.
Accordingly, for holders of our ADSs, realization of a gain on their investment will depend on the appreciation of the price of our ADSs, which may never
occur. Investors seeking cash dividends in the foreseeable future should not purchase our ADSs.
Holders of our ADSs may not receive dividends or other distributions on our Class A ordinary shares and may not receive any value for them, if it is illegal
or impractical to make them available.
The depositary of our ADSs has agreed to pay to holders of our ADSs the cash dividends or other distributions it or the custodian receives on Class A
ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. Holders of our ADSs will receive these distributions in
proportion to the number of Class A ordinary shares their ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists
of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration.
The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be
less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S.
securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to
permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that holders of our ADSs may not receive distributions
we make on our Class A ordinary shares or any value for them if it is illegal or impractical for us to make them available. These restrictions may cause a
material decline in the value of our ADSs.
Holders of our ADSs may not be able to participate in rights offerings and may experience dilution of your holdings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will
not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from
registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is
not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from
registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to
endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may
experience dilution of their holdings as a result.
Holders of our ADSs may be subject to limitations on transfer of our ADSs.
Our ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems
expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in
connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for
a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer
or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is
advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any
other reason.
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We incur increased costs as a result of being a public company.
As a public company, we incur significant accounting, legal and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act,
as well as rules subsequently implemented by the SEC and NASDAQ, have detailed requirements concerning corporate governance practices of public
companies, including Section 404 of the Sarbanes-Oxley Act relating to internal controls over financial reporting. We expect these rules and regulations
applicable to public companies to increase our accounting, legal and financial compliance costs and to make certain corporate activities more time-consuming
and costly. Our management will be required to devote substantial time and attention to our public company reporting obligations and other compliance matters.
We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate the amount of additional
costs we may incur or the timing of such costs. Our reporting and other compliance obligations as a public company may place a strain on our management,
operational and financial resources and systems for the foreseeable future.
In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the
market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other
resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such
class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully
made against us, we may be required to pay significant damages, which could have a material and adverse effect on our financial condition and results of
operations.
Item 4.
Information on the Company
A.
History and Development of the Company
We began our operation in China through Nanjing Tuniu, a PRC company formed in December 2006. Nanjing Tuniu acquired 100% of the equity
interests in Shanghai Tuniu International Travel Service Co., Ltd., Nanjing Tuniu International Travel Service Co., Ltd. and Beijing Tuniu International Travel
Service Co., Ltd. in August 2008, December 2008 and November 2009, respectively. Nanjing Tuniu established Nanjing Tuzhilv Tickets Sales Co., Ltd. in
April 2011.
In June 2008, we incorporated Tuniu Corporation under the laws of the Cayman Islands as our offshore holding company in order to facilitate
international financing. In May 2011, we established our wholly owned Hong Kong subsidiary, Tuniu (HK) Limited.
We completed our initial public offering and listed our ADSs on the NASDAQ under the symbol “TOUR” in May 2014. At the time of our initial
public offering, we also entered into a concurrent private placement with three investors.
In December 2014, we entered into a share subscription agreement with Unicorn Riches Limited, a special purpose vehicle of Hony Capital, JD.com E-
commerce (Investment) Hong Kong Corporation Limited, a special purpose vehicle of JD.com, Inc. (Nasdaq: JD), Ctrip Investment Holding Ltd., a subsidiary
of Ctrip.com International, Ltd. (Nasdaq: CTRP) and the respective personal holding companies of Tuniu’s chief executive officer and chief operating officer,
pursuant to which we sold a total of 36,812,868 newly issued Class A ordinary shares for US$148 million.
In May 2015, we entered into a share subscription agreement with each of Fabulous Jade Global Limited, a subsidiary of JD.com, Inc., Unicorn Riches
Limited, a special purpose vehicle of Hony Capital, DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P., both
affiliates of DCM V, L.P., Ctrip Investment Holding Ltd., a subsidiary of Ctrip.com International, Ltd., Esta Investments Pte Ltd, an affiliate of Temasek
Holdings and Sequoia Capital 2010 CV Holdco, Ltd, an affiliate of Sequoia Capital, pursuant to which we sold a total of 93,750,000 newly issued Class A
ordinary shares for US$500 million.
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In November 2015, we entered into a share subscription agreement with HNA Tourism Group, or HNA Tourism, pursuant to which an affiliate of
HNA Tourism purchased 90,909,091 newly issued Class A ordinary shares from us for US$500 million in January 2016.
During the year ended December 31, 2015, we acquired 100%, 100%, 75% and 80% of equity interests of four offline travel agencies, respectively. We
gained access to the expanding Taiwan tourism market and improved the capability in the direct procurement of products with these acquisitions. The total
purchase price was RMB119.5 million (US$18.4 million), which included cash consideration of RMB104.2 million (US$16.0 million) and RMB15.3 million
(US$2.4 million), the fair value of contingent cash consideration to be made based on the achievement of certain revenue and profit target over the next three to
four years.
Tuniu Corporation established a wholly owned PRC subsidiary, Beijing Tuniu, in September 2008. Tuniu (HK) Limited established another wholly
owned PRC subsidiary, Tuniu (Nanjing) Information Technology Co., Ltd., in August 2011, and acquired 100% of the equity interests in Beijing Tuniu in
September 2011. Through Beijing Tuniu, we obtained control over Nanjing Tuniu by entering into a series of contractual arrangements, including purchase
option agreement, equity interest pledge agreement, shareholders’ voting rights agreement, powers of attorney and cooperation agreement, with Nanjing Tuniu
and its shareholders. Nanjing Tuniu holds our ICP licenses as an Internet content provider and operates our website. Beijing Tuniu International Travel Service
Co., Ltd. and Nanjing Tuniu International Travel Service Co. Ltd., both of which are Nanjing Tuniu’s subsidiaries, hold our operation permits for overseas
travel business.
These contractual arrangements allow us to:
(cid:120)
(cid:120)
(cid:120)
exercise effective control over Nanjing Tuniu;
receive substantially all of the economic benefits of Nanjing Tuniu; and
have an option to purchase all or part of the equity interests in Nanjing Tuniu when and to the extent permitted by PRC law.
As a result of these contractual arrangements, we are the primary beneficiary of Nanjing Tuniu, and we treat it and its subsidiaries as consolidated
affiliated entities under U.S. GAAP. We have consolidated the financial results of Nanjing Tuniu and its subsidiaries in our consolidated financial statements in
accordance with U.S. GAAP.
Our principal executive offices are located at Tuniu Building No. 699-32 Xuanwudadao, Xuanwu District, Nanjing, Jiangsu Province 210042, the
People’s Republic of China. Our telephone number at this address is +86 (25) 8685-3969. Our registered office in the Cayman Islands is located at International
Corporation Services Ltd., P.O. Box 472, 2nd Floor, Harbour Place, 103 South Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands. Our
agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York
10017.
See “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures” for a discussion of our capital
expenditures.
B.
Business Overview
We offer a large selection of packaged tours, including organized tours and self-guided tours, as well as travel-related services for leisure travelers. Our
online platform, which comprises our tuniu.com website and mobile platform, provides comprehensive product and travel information through user-friendly
interfaces to enable leisure travelers to plan their travels and search for itineraries that best suit their needs. Our online platform contains travel guides featuring
photos, information and recommendations for all destinations we cover, as well as user-generated content that serves as valuable references for other travelers.
To cultivate customer loyalty and ensure customer satisfaction, we complement our online platform with an extensive nationwide service network,
including our primary call center in Nanjing, a regional call center in Guangzhou and 160 regional service centers located in 154 cities across China as of
December 31, 2015. In 2015, we executed our regional expansion strategy by adding 85 regional service centers throughout China. As of December 31, 2015,
we had a team of over 1,400 well-trained tour advisors to closely assist customers throughout their booking process. We believe that our high-quality customer
service has contributed to the continuous growth in our customer base. The total number of trips sold by us grew from approximately 2,182,000 in 2014 to
approximately 4,449,000 in 2015.
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Our recognized brand in leisure travel and growing customer base enable us to source a broad range of products from high-quality travel suppliers at
competitive prices. We rigorously select our travel suppliers to ensure quality and reliability. We have developed our proprietary supply chain management
system—N-Booking system—to streamline our interactions with travel suppliers, allowing them to receive booking information real-time, through the web or
mobile devices to more efficiently manage travel products and better understand customer preferences. In addition, to further broaden the range of our products
and better serve our customers, we enter into strategic agreements with various industry partners from time to time. For example, in December 2014, we entered
into a strategic cooperation agreement with Ctrip.com International, Ltd., a leading travel service provider in China, in order to expand our collaboration on
shared travel resources. In November 2015, we formed a strategic partnership with HNA Tourism, under which HNA Tourism undertook to provide us with its
premium airline and hotel resources at a preferential rate, under fair competition market rules.
Our Products and Services
We offer a wide array of packaged tours and other travel-related services to meet the diverse travel needs and preferences of leisure travelers in China.
Our packaged tours consist of organized tours and self-guided tours. Our core strength is in overseas leisure travel products and services, which contributed over
65% of our gross bookings in 2015.
Organized Tours
Our organized tours offer the benefits of pre-arranged itineraries, transportation, accommodations, entertainment, meals and tour guide services. By
booking an organized tour with us, our customers can achieve cost savings compared to booking each component separately and enjoy a pleasant and hassle-
free travel experience.
Our organized tours cover over 150 countries and regions worldwide, including nearly all of the popular tourist destinations among Chinese travelers,
such as Europe, Thailand, Indonesia (Bali), the Maldives, Korea, Japan, Hong Kong, the United States and Saipan Islands, as well as all of the popular tourist
attractions in China. Organized tours are particularly popular for overseas destinations with language or cultural barriers.
Our organized tour product portfolio also includes local tours, which mainly consist of weekend getaways and themed tours, such as water-village
tours, historical-town tours, ski tours and hot spring tours, and mainly target customers who want to spend one to three days away from their departing cities.
Typically, local tours have a lower average gross bookings per trip as compared to other types of organized tours.
In addition, to address the needs of group travelers who cannot be satisfied by off-the-shelf standard packaged travel products, such as companies
planning travel retreats and families planning group tours, we provide customized tours to cater to such specific travel needs. Our group travel tour advisors
work closely with our travel suppliers and our customers to design travel products and itineraries that meet such customers’ unique needs.
Self-guided Tours
Our self-guided tours consist of combinations of flights and hotel bookings and other optional add-ons, such as airport pick-ups. These products are
offered at attractive prices compared to booking each travel product separately. Our self-guided tours target leisure travelers who prefer greater flexibility during
their vacations and who do not need tour guide services. Due to the breadth of our travel suppliers, we are able to provide a wide selection of self-guided tours,
covering a large number of hotels and airlines, and have developed the most comprehensive product offerings for selected popular destinations.
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Other Travel-Related Services
Our other travel-related services comprise mainly sales of tourist attraction tickets, visa processing services, financial services, hotel booking services
and air ticketing services. We earn a commission or service fee on these services. In addition, we provide advertising services to domestic and foreign tourism
boards and bureaus on our online platform.
Our Online Platform and Offline Service Network
We reach and serve customers through multiple online and offline channels, including our tuniu.com website, mobile platform, a primary call center in
Nanjing, a regional call center in Guangzhou and, as of December 31, 2015, 160 regional service centers in 154 cities across China.
Our online platform provides our customers with the tools and information to conveniently plan, book and purchase travel products and services. In
addition, our online platform presents comprehensive product information and travel requirements through user-friendly interfaces for leisure travelers to easily
search for, compare and place orders for product offerings that best suit their needs. As of December 31, 2015, we had over 1,400 well-trained tour advisors and
over 350 customer service representatives located at our centralized call center to supplement our online transaction infrastructure by providing our customers
with professional advice and guidance throughout their travel planning and bookings process as well as timely support before and during their travels. The
inclusion of a customer-focused, service network is particularly important to customers of our travel products with high selling prices as these customers usually
demand more assistance and attention in their travel planning.
Our Website
Our website, tuniu.com, provides a one-stop travel platform for our customers to do everything from researching travel destinations to booking travel
products. In addition to our product information such as tour duration, departure time and destination descriptions, our website features comprehensive travel
advice ranging from basic information to professional and user recommendations and travelers’ reviews for the destinations we cover. Users can post questions
regarding specific products and receive timely responses online from our well-trained tour advisors and customer service representatives, which facilitates their
travel planning, product selection, reservations and payments. Our user-friendly interface enables users to quickly and easily evaluate and compare a wide array
of travel products. Customers can also raise complaints about our travel products and services through the online-messaging function on our website.
We encourage our customers to share photos, stories and other travel-related information on our website. We have built a large and fast-growing
collection of customer reviews and travel stories which we believe are attractive and useful to our current and prospective customers. As of December 31, 2015,
we had more than 2,000,000 customer reviews and over 30,000 travel stories and destination guides on our website. The Travelogue forum on our website,
which is organized based on destinations, provides our customers with an easy and intuitive way to access various topics of interest. Registered members can
share their travel experiences and interact with other members by posting questions and receiving answers from fellow forum members. We have a
comprehensive collection of descriptions and photos of different destinations. Our website also provides other useful travel-related information, such as weather
forecasts, exchange rates, train schedules and subway maps to further enhance user experience.
A transaction on our website generally involves the following steps:
Browse. A customer typically enters one of our over 150 city webpages by selecting his location or departing city. The customer can easily browse our
product selection by travel destination. In order to allow customers to locate the products they are interested in, our website also arranges our travel product
offerings into different categories, such as organized tours, self-guided tours, corporate tours, cruises, tickets for tourist attractions, self-drive tours and visa
applications. The customer can also choose to browse through our best-sellers for each of local tours, domestic tours, overseas tours, self-guided tours and
tickets for tourist attractions.
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Search and Select. A customer conducts a search for a particular product on our website by defining desired parameters, such as destinations, departing
cities, departure time, product types, tour duration, number of travelers, prices and itineraries. We provide the customer with information regarding each travel
product in detail together with photographs of the destinations and hotels as well as customer reviews and ratings. Our website displays various possible
selections and provides additional information about the products. The customer can sort, refine or rank search results by further defining certain search
parameters such as price range, customer ratings, popularity and keywords. Our online Q&A feature enables the customer to raise inquiries and receive timely
responses to facilitate their research. In addition, the comparison tool on our website displays details of different travel products side-by-side, enabling the
customer to evaluate different travel products easily.
Order Placement. After a customer has selected a particular option, our website will provide the customer with an opportunity to review details of the
travel products and services being purchased and the terms and conditions of such purchase. The customer can also request assistance and professional advice
from our tour advisors who will promptly follow up and interact with the customer online or by phone.
Contract Confirmation. At this stage, a customer is required to confirm that he agrees to the terms and conditions of his purchase. The customer can
submit his confirmation online or sign the contract related to his purchase in one of our regional service centers or send us the signed contract. Contracts are
entered between us and the customer directly.
Payment. After confirming the terms of a contract, a customer will be directed to the payment webpage. We offer our customers the flexibility to
choose a number of payment options, which include bank transfers, credit cards, debit cards and online payment through third-party online payment platforms.
In addition, the customer can pay at one of our regional service centers. If available, the customer can also discount the purchase price of our travel products by
using our coupons and travel vouchers. Electronic confirmations are sent to the customer’s e-mail address or mobile phone and the customer can use the
itinerary management function on our website to check his booking details as well as amend or cancel his bookings.
Review. After completing their trips, a customer is provided with incentives such as coupons to return to our website to write reviews and travel stories
and share his experience on our Travelogue forum. This increases transparency regarding our travel product quality and increases customer stickiness. We
regard customer reviews and travel stories, which provide valuable information to potential customers, as important criteria in assessing the quality and
performance of our travel suppliers and travel products.
We offer customized services via a sophisticated account management system accessible on our online platform. After logging on with a unique
identification, a customer can track order status, manage itineraries and check membership points, coupons and travel vouchers.
Our Mobile Platform
Our Android- and Apple iOS-based mobile applications, such as Tuniu Travel, and the mobile version of our website, m.tuniu.com, allow customers to
search for travel products and services and place orders on mobile devices. Our mobile platform also enables customers to track their order status and provides
other location-based services to allow users to quickly locate a variety of nearby scenic spots.
Through Tuniu Travel, our customers can search for travel products and services and complete a booking within minutes. Tuniu Travel also serves as
an important and integral part of customers’ research on travel-related information. Customers often use our in-house developed and user-generated travel
guides and other user generated content, such as customer reviews, travel stories, tips and recommendations, on our Tuniu Travel to plan their travels. In
addition, we offer discounted travel products that are exclusive to users of Tuniu Travel for limited periods to enhance our mobile user engagement and increase
monetization.
Our Customer Services
When selecting a travel company or platform, leisure travelers often look beyond factors such as prices and selection and focus on enjoyable
experiences, in which our customer services play a crucial part. We believe that the quality customer services provided by our well-trained tour advisors and
customer service representatives gravitate our customers towards our online platform.
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Offline nationwide service network. Our primary call center is located in our headquarters in Nanjing, with over 350 customer service representatives
as of December 31, 2015. In addition, we have a regional call center in Guangzhou dedicated to serving Cantonese-speaking clients, designed to better serve the
heightened demand in the region for leisure travel. Our call centers provide 24-hour-a-day, seven-day-a-week customer services before, during and after travels,
from answering customers’ initial inquiries on their travel-related needs to assisting them in making and amending their travel bookings. For inquiries on
detailed product information and itinerary management, our customer service representatives allocate them according to destinations to our in-house tour
advisors, who follow up with our customers within half an hour to address their concerns and needs. We have implemented comprehensive performance
measures to monitor our calls to ensure our customers receive quality services. In October 2013 and 2015, we obtained the Best Call Center Award in the CCM
Awards that was jointly organized by CCMWorld Group and CC-CMM Organization, and in October 2014 and in 2015, we received the Golden Tone Award
from 51CallCenter, a call center and business process outsourcing industry group, for offering outstanding call center and customer service experiences. In
addition, as of December 31, 2015, we had 160 regional service centers located across 154 cities in China to handle inquiries from customers as well as process
visa applications and payments.
Tour Advisors. As of December 31, 2015, we had over 1,400 tour advisors who are well-trained through in-house training workshops as well as
training sessions provided by our travel suppliers to closely assist our customers throughout their travel planning and booking process from pre-sale consultation
to final order confirmation. Our tour advisors are equipped with product expertise to guide customers through the details of available packaged tours on our
online platform and provide insightful advice on customers’ desired travel destinations. Our tour advisors provide professional guidance on product selection,
price, travel requirements and payment to ensure an efficient and informed shopping experience.
To create a better travel experience for our customers, we are committed to sharing part of their losses due to certain unexpected events. For example,
if our customers cannot travel due to death, pregnancy, serious injury, hospitalization or rejection of visa applications after entering into contracts with us, we
will provide them with travel vouchers equivalent to a portion of the amounts paid which are redeemable towards the purchase of our travel products at a later
time.
Supply Chain Management
As of December 31, 2015, we had over 11,000 travel suppliers, which primarily include tour operators, travel services providers and wholesalers of
travel products and services in China. We believe that our ability to enable our travel suppliers to extend their reach to potentially millions of Internet users in
China and fulfill their needs for inventory management, attracts new quality travel suppliers and builds stronger ties with our existing travel suppliers. As of
December 31, 2015, we had a product procurement team of over 1,250 staff dedicated to developing and enhancing our relationships with existing and
prospective travel suppliers. In the fourth quarter of 2015, our direct procurement products, which continue to gain traction with our customers, reached over
30% of our total gross merchandise value.
We source a broad range of products from travel suppliers who have significant advantages in the destinations we cover and who offer travel products
at competitive prices, which enhances our ability to attract more customers to our online platform. Our growing customer base in turn attracts more travel
suppliers, creating a virtuous cycle that strengthens our leading market position.
We generally enter into contracts with our travel suppliers based on our standard form. Our travel suppliers often pay us rebates based on our business
volume. In addition, some of our travel suppliers require prepayments for reserving tour availabilities. Typically, we settle payment with our travel suppliers on
a monthly basis, although our travel suppliers can also request for an early settlement on a discounted basis. To date, substantially all of our travel suppliers
have sought to pursue continuing cooperation opportunities with us. In order to support and retain suppliers, in November 2014, we entered into framework
cooperation agreements with four PRC-based banks under which the banks intend to make available loan facilities to us or our suppliers. See “—Financial
Services” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
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We conduct a rigorous process in qualifying travel suppliers and in selecting their travel products and services. In qualifying a potential travel supplier,
we focus on its reputation, product quality, track record, credibility and price competitiveness.
In addition, our travel suppliers can participate in biddings for priority listings, prominent placements for biddings and advertising displays on our
website for the travel products they supply.
Product Selection
We adopt an open-source procurement strategy to source quality travel products in the destinations we cover. Our product procurement team works
closely with our travel suppliers to ensure that customers are provided with high-quality travel products. In addition, we conduct regular price comparisons for
our travel products to assess the competitiveness of our pricing.
Supply Management
We host one major procurement event each year and present our major travel suppliers with our estimated volume demand. We also constantly
communicate with our travel suppliers, mainly through our product procurement team and our proprietary N-Booking system, to keep them informed of any
changes to the supply outlook so that they can respond to customer demand in a timely manner. This helps us and our travel suppliers make timely adjustments
to procurement plans.
Supplier Quality Control
We have developed product and service provision protocols for travel suppliers to follow. Given that we have recently undergone an extensive regional
expansion, with 160 regional service centers throughout China as of December 31, 2015, we are able to closely track the performance of travel suppliers in each
locale through our service centers. We have a dedicated team in charge of monitoring travel suppliers based on customer feedback; which also provides
recommendations for travel suppliers to improve their service quality and the products they supply. We impose penalties on our travel suppliers or cease selling
their travel products if their products fail to meet our quality standards or if we receive valid complaints from our customers. We also prepare regular assessment
reports on our travel suppliers based on the popularity, quality and price competitiveness of their travel products. To monitor and further improve the quality of
our travel suppliers and the products and services we offer, we proactively collect feedback from our customers after their travels.
N-Booking System
We have developed a proprietary N-Booking system, accessible via web and mobile, that offers our travel suppliers the following features:
Product Management. Travel suppliers can submit details of their travel products via an easy-to-navigate online interface. After our review and
approval, we will post the details provided by the travel suppliers and the prices determined by us on our online platform. In addition, our N-Booking system
provides travel suppliers with an option to use descriptions and photos of destinations and tourist attractions in our database.
Just-In-Time Management. Our N-Booking system provides travel suppliers with access to real-time inventory data and gives them a wide range of
inventory management tools. Our N-Booking system also notifies travel suppliers of any changes in the inventory level of the travel products we source from
them, which enables them to timely adjust their procurement and sales plans. As such, we are able to deliver real-time information on product availability and
provide our customers with prompt booking and order confirmations.
Account Management. Our travel suppliers can review transaction history details on our N-Booking system. They can also submit requests for early
settlement of their account balance with us on a discount basis.
Data Analysis. Supported by our big data platform, travel suppliers can analyze and understand user behavior based on their browsing history. Travel
suppliers can keep track of traffic brought to the travel products supplied by them on our online platform and are able to evaluate the competitiveness of
different travel products. We believe the user information gathered from our online platform reflects current leisure travel market trends in China and provides
excellent market insights to our travel suppliers for their procurement planning and product design. By leveraging our data mining and analytics capabilities,
travel suppliers are able to develop a more in-depth understanding of customers’ behaviors and preferences, potentially unlocking significant value.
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Financial Services
We currently offer a range of financial services, which complement our core leisure travel business, to both our customers and suppliers. Our financial
services are designed to systematically support the overall development of the leisure travel market in China by funding customers’ travels and supporting
suppliers’ growth. For our customers, we provide travel financing products enabling customers to travel with an initial down payment, which has been
particularly popular among the young generation of travelers who are more price-sensitive. In addition, we also offer yield enhancement products and insurance
products to our customers. For our suppliers, we provide various types of loans that optimize working capital for our selected suppliers, allowing them to
provide high-quality travel products on a larger scale.
Technology
We have built our technology infrastructure with high levels of performance, reliability, scalability and security to ensure superior customer and
supplier experiences. We rely on internally developed proprietary technologies and licensed technologies to manage and improve our website, mobile platform
and management systems. As of December 31, 2015, we had a team of over 1,000 engineers dedicated to research and development in the areas of website
operations, mobile platform, search engine, data analytics and supply chain management system.
We believe that an advanced technology platform is vital to our growth and success. In 2012, we obtained ISO 9001:2008 certification for our quality
management system and ISO 27001:2005 certification for our information security management system in the design, development and maintenance of our
online platform, indicating our compliance with internationally recognized standards for quality control.
Product Search
We strive to present relevant and useful search results in a timely fashion to ensure the accuracy, efficiency and synchronism of our search results.
Despite the difficulties in analyzing leisure travel products data, we have developed search technologies that allow us to retrieve, index, filter and rank real-time
product information. We are able to prioritize the search results and display information most suited to our customers’ requirements in a simple and intuitive
interface in real-time. Our core search technologies include the following:
Real-time Indexing. Our search infrastructure enables changes in product data to be indexed, processed and reflected in search results on a real-time
basis.
Smart Caching. We maintain a database with massive product information on packaged tours, hotels, flights and other travel-related services. We have
designed an auto-prioritizing method to update the database by ranking popular products based on different criteria, such as popular cities, most-visited
attractions, top-rated products and most-viewed products. Different refreshing frequencies are applied to different products.
Accuracy Checking. Our accuracy checking software complements our smart caching system and is implemented to display the latest product
information such as prices and product descriptions. When a user clicks on the interested search result, an accuracy checker is triggered to retrieve the updated
product information and present it to the user.
Fuzzy Query Processing. We maintain a dictionary for travel-related keywords in Chinese, where keywords are classified and linked to each other
based on their meanings. We have also developed a query search algorithm based on user inputs to enhance our ability to dissect natural language queries. Such
technologies help us better understand the meanings of queries and to produce the most relevant and useful search results. We also provide additional search
features such as query spelling correction, query suggestion and search by Chinese phonetics (Pinyin).
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Big Data Analysis
We gather and analyze customer behavior and data for our procurement, inventory management and marketing purposes. We also provide selected data
to our travel suppliers, enabling them to optimize their product designs and marketing strategies.
Big Data Platform. We have developed our big data platform based on a distributed computing system. Such data analytics capabilities help us to gain
a deeper understanding of existing and prospective customers and market trends, make customized recommendations to customers and improve our applications
and products accordingly.
Streaming Data Analysis. We have also built a streaming data processing pipeline based on our big data platform to view the browsing history of the
users of our online platform and to allow our travel suppliers to review their performance data near real-time.
Web Content Mining. Our web content processing system links user generated content which includes customer reviews, travel stories and tips as well
as destination guides such as locations, hotels and tourist attractions. This allows users of our online platform to obtain information of different destinations and
travel products and services in a user-friendly manner.
N-Booking System
Our N-Booking system streamlines the interactions between us and our travel suppliers. Our N-Booking system also allows our travel suppliers to
receive booking information real-time through the web or mobile devices to more efficiently manage travel products and better understand customer
preferences. See “—Supply Chain Management—N-Booking System.”
CRM System
Through a customer relationship management system, or CRM system, we gather, analyze and make use of internally-generated customer behavior and
transaction data based on customers’ historical purchase and browsing records. We regularly use this information in budgeting and procurement planning as
well as in planning our marketing initiatives and promotional campaigns.
Data Security
Our system servers are housed in Nanjing and Beijing, and have secure and dedicated communication links among them. All data are backed up on an
hourly basis. Our system servers utilize digital certificates to help us conduct secure communications and transactions. The performance of our system servers is
monitored and maintained by an internal team that operates 24 hours a day, seven days a week. Customer sensitive information, such as password and payment
information, is stored with encryption, and our data servers are secured with firewalls.
Dynamic Packaging System
We have leveraged our data analytics capabilities to develop a dynamic packaging system that enables our users to customize their own travel packages
tailored to individual travelers’ needs. This system is able to combine trip components from different suppliers to provide truly customized trips, automating and
placing in the hands of our customers a function that was previously performed manually. It uses algorithms and past customer data to filter out unnatural
choices and provide customers with relevant choices based on their ascertainable behavior. We believe this is one of the first systems of its type in China.
Seasonality
Our business experiences fluctuations, reflecting seasonal variations in demand for leisure travel services. Sales of leisure travel products and services
will increase in respect of holiday periods and decrease in respect of off-peak times, while prices of leisure travel products and services are subject to fluctuation
between peak seasons and low seasons. For example, the third quarter of each year generally contributes the highest percentage of our annual revenues, because
many of our customers tend to travel during summer holidays in July and August.
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Marketing and Brand Building
We have been making continuing efforts in building and maintaining a strong Tuniu brand through both traditional offline marketing media and online
marketing channels. We conduct offline advertising primarily via television and outdoor advertisements. For our television marketing, we place a number of
commercials on various television channels across China, and we also sponsor a few of the most popular television programs in China to strengthen our brand
awareness. Our outdoor marketing includes advertisements on buses and subways. In addition, we also organize targeted campaigns, make promotional and
seasonal offers and cooperate with domestic and foreign tourism boards and bureaus in holding promotional events and marketing campaigns.
While our offline advertising plays an important role in promoting our brand image, we complement our branding campaigns through mobile and
online channels. We promote our mobile app through advertisements in the mobile app store and various display advertisements. We have also entered into
agreements with a number of search engines, pursuant to which we have purchased travel-related keywords or directory links that direct users to our website. In
addition, we have a strong presence in online social media such as Tencent’s WeChat and Sina’s Weibo. We believe that our presence in online social media
helps us maintain engagement with our targeted customers. In May 2015, in connection with the investment that JD.com, Inc. made in our company, we entered
into a business cooperation agreement with JD.com, Inc., under which we gain the exclusive rights to operate, for five years without paying any fees, the leisure
travel channel on both JD.com, Inc.’s website and mobile application, and become JD.com, Inc.’s preferred partner for hotel and air tickets booking services.
The business cooperation with JD.com, Inc. has contributed to the increased traffic on our website since its implementation.
As part of our cross-marketing effort, we have agreements with financial institutions to recommend our products and services to their debit or credit
card holders, and we allow these cardholders to settle their payments for travel products purchased from us using these cards with discounts. For instance, we
cooperated with Bank of Jiangsu, China Construction Bank and China CMC bank and launched co-branded credit cards, through which cardholders may book
with us and are entitled to discounts, bonus points and certain other privileges.
Furthermore, our customer reward program allows our customers to accumulate membership points and coupons as they purchase travel products and
services. Our membership points have a fixed validity term and, before expiry, customers may redeem these points for future purchases. Our customer reward
program is designed to encourage repeat purchases. Currently, our membership has five levels. For customers who meet certain spending thresholds, we
upgrade their membership status to the next level, entitling them to further discounts and more points for their spending. For customers who have achieved the
top two levels of membership status, we provide them with designated customer service representatives to handle their travel needs.
Competition
We compete primarily with all other types of online travel companies. In addition, we compete with traditional travel service providers and tour
operators. In our self-guided tour business, as we sell packaged tours which include flights and hotels, we also compete with airlines and hotels, which in recent
years have made efforts to improve their direct sales. Large, established Internet search engines have also launched applications offering travel products in
various destinations around the world. Factors affecting our competitiveness include, among other things, price, availability and breadth of choice of travel
products and services, brand recognition, customer services, and ease of use, accessibility, security and reliability of our transaction and service infrastructure.
Some of our current and potential competitors may have greater financial, marketing and other resources than we do. In addition, some of our
competitors may be acquired by, receive investment from or enter into strategic relationships with larger, well-established and well-financed companies or
investors. They may be able to devote greater resources to marketing and promotional campaigns and devote substantially more resources to website and system
development than us. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business and Industry—We face intense competition and may not
be able to compete successfully against existing and new competitors.”
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Intellectual Property
Our success and ability to compete depend, in part, upon our ability to establish and adequately protect our intellectual property rights. In this regard,
we rely primarily on a combination of copyright, software registration, trademark, trade secret and unfair competition laws and contractual rights, such as
confidentiality agreements with our employees and others. As of December 31, 2015, we had 34 registered computer software copyrights, one registered patent
and 11 registered artwork copyrights in China, and were in the process of applying for 12 patents in China. In addition, as of December 31, 2015, we had 100
registered domain names that were material to our business, including tuniu.com, and 139 registered trademarks, including 途牛 (the Chinese characters of
Tuniu),
, in China.
and
Insurance
We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased travel companies’ liability insurance
covering expenses related to accidents caused by us. We have also maintained property insurance policies for our fixed assets covering losses due to fire,
explosion, lightning, storm, landslide, subsidence and aircraft damage.
PRC Regulation
This section sets forth a summary of the significant regulations or requirements that affect our business activities in China or our shareholders’ rights to
receive dividends and other distributions from us.
Regulations on Value-Added Telecommunication Services
The PRC government extensively regulates the telecommunications industry, including the Internet sector. The PRC State Council, the MIIT, the
Ministry of Commerce, the State Administration for Industry and Commerce, or the SAIC, the State Administration of Press, Publication, Radio, Film and
Television (formerly the General Administration of Press and Publication) and other relevant government authorities have promulgated an extensive regulatory
scheme governing telecommunications, Internet-related services and e-commerce. However, since China’s telecommunications industry and Internet-related
industry are at an early stage of development, new laws and regulations may be adopted from time to time that will require us to obtain additional licenses and
permits in addition to those that we currently have, and will require us to address new issues that arise from time to time. As a result, substantial uncertainties
exist regarding the interpretation and implementation of current and any future Chinese laws and regulations applicable to the telecommunications, Internet-
related services and e-commerce. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—Uncertainties in the
interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.”
Licenses for Value-Added Telecommunication Services
The Telecommunications Regulations issued by the PRC State Council in September 2000 are the primary regulations governing telecommunication
services. The Telecommunications Regulations set out the general framework for the provision of telecommunication services by PRC companies. Under the
Telecommunications Regulations, it is a requirement that telecommunications service providers procure operating licenses prior to commencement of their
operations. The Telecommunications Regulations draw a distinction between “basic telecommunications services” and “value-added telecommunications
services.” Internet content provision services, or ICP services, is a subcategory of value-added telecommunications services.
Pursuant to the Administrative Measures for Telecommunications Business Operating Permit promulgated by the MIIT in March 2009, as amended in
December 2011, there are two types of telecommunication operating license for operators in China, namely, licenses for basic telecommunications services and
licenses for value-added telecommunications services. The operation scope of the license will specify the permitted activities of the enterprise to which it is
granted. An approved telecommunication services operator must conduct its business in accordance with such specifications.
Pursuant to the Administrative Measures on Internet Information Services, promulgated by the PRC State Council in September 2000, commercial
Internet information services operators must obtain an ICP license, from the relevant government authorities before engaging in any commercial Internet
information services operations within the PRC. Nanjing Tuniu, our consolidated affiliated entity, obtained ICP licenses issued by the Jiangsu Administration of
Telecommunication which will expire in March 2019.
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The Internet Electronic Bulletin Service Administrative Measures promulgated by the MIIT in November 2000 require Internet information services
operators to obtain specific approvals before providing BBS services, which include electronic bulletin boards, electronic forums, message boards and chat
rooms. In July 2010, the requirement of BBS approval was terminated by a decision issued by the PRC State Council. However, in practice, the relevant
authorities still require obtaining such approval for the operation of BBS services. We have applied to the Jiangsu Administration of Telecommunication for and
have obtained an approval for the operation of BBS services on our website.
Foreign Investment in Value-Added Telecommunications Services
The Catalog for the Guidance of Foreign Investment Industries, or the Catalog, as promulgated and amended from time to time by the Ministry of
Commerce and the National Development and Reform Commission, is the principal guide to foreign investors’ investment activities in the PRC. The most
updated version of the Catalog, which was promulgated in 2015, divides the industries into three categories: encouraged, restricted and prohibited. Industries not
listed in the Catalog are generally open to foreign investment unless specifically restricted by other PRC laws and regulations. A wholly foreign-owned
enterprise is generally permitted for encouraged industries, while for restricted industries, such as value-added telecommunications service industry, there are
some limitations to the ownership and/or corporate structure of the foreign-invested companies that operate in such industries. Industries in the prohibited
category are not open to foreign investors.
Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises, promulgated by the PRC State Council in
December 2001 and amended in September 2008, the ultimate foreign equity ownership in a value-added telecommunications services provider may not exceed
50%. Moreover, for a foreign investor to acquire any equity interest in a value-added telecommunication business in China, it must satisfy a number of stringent
performance and operational experience requirements, including demonstrating good track records and experience in operating value-added telecommunication
business overseas. Foreign investors that meet these requirements must obtain approvals from the MIIT and the Ministry of Commerce or their authorized local
counterparts, which retain considerable discretion in granting approvals. Pursuant to publicly available information, the PRC government has issued
telecommunications business operating licenses to only a limited number of foreign-invested companies, all of which are Sino-foreign joint ventures engaging
in the value-added telecommunication business.
The MIIT Circular issued in July 2006 reiterated the regulations on foreign investment in telecommunications businesses, which require foreign
investors to set up foreign-invested enterprises and obtain a business operating license for Internet content provision to conduct any value-added
telecommunications business in China. Pursuant to the MIIT Circular, a domestic company that holds an ICP license is prohibited from leasing, transferring or
selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or facilities, to foreign investors that
conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and domain names that are used in the value-added
telecommunications business must be owned by the domestic ICP license holder or its shareholders. The MIIT Circular further requires each ICP license holder
to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-
added telecommunications service providers are required to maintain network and information security in accordance with the standards set forth under relevant
PRC regulations.
In light of the aforesaid restrictions, we rely on Nanjing Tuniu, our consolidated affiliated entity, to hold and maintain the licenses necessary to provide
online marketing services and other value-added telecommunications services in China. For a detailed discussion of our contractual arrangements, please refer
to “—C. Organizational Structure.” To comply with these PRC regulations, we operate our website and value-added telecommunications services through
Nanjing Tuniu. Nanjing Tuniu holds our ICP licenses and owns all domain names used in our value-added telecommunications businesses. Nanjing Tuniu is
also the owner of all registered trademarks used in our value-added telecommunications businesses and is the applicant of all registered trademark applications
we are currently making.
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Regulations on Information Security and Censorship
The PRC government regulates and restricts Internet content in China to protect state security and ensure the legality of the Internet content. The
National People’s Congress, China’s national legislative body, enacted a Decision on the Safeguarding of Internet Security in December 2000, as subsequently
amended in August 2009, among other things, makes it unlawful to: (1) gain improper entry into a computer or system of strategic importance; (2) disseminate
politically disruptive information; (3) leak state secrets; (4) spread false commercial information; or (5) infringe intellectual property rights. Pursuant to the
Administrative Measures on Internet Information Services and other applicable laws, Internet content providers and Internet publishers are prohibited from
posting or displaying over the Internet content which violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene,
superstitious, fraudulent or defamatory. Internet service providers are required to monitor their websites, including electronic bulletin boards. They may not post
or disseminate any content that falls within these prohibited categories and must remove any such content from their websites. The PRC government may shut
down the websites of ICP license holders that violate any of the above-mentioned content restrictions and revoke their ICP licenses. In addition, the MIIT has
published regulations that subject ICP operators to potential liability for content displayed on their websites and the actions of users and others using their
systems, including liability for violations of PRC laws and regulations prohibiting the dissemination of content deemed to be socially destabilizing. The
Ministry of Public Security has the authority to order any local Internet service provider to block any Internet website at its sole discretion. From time to time,
the Ministry of Public Security has stopped the dissemination over the Internet of information which it believes to be socially destabilizing.
The Ministry of Public Security has promulgated the Administrative Measures for the Security Protection of International Connections to Computer
Information Network in December 1997 that prohibit the use of the Internet in ways which, among other things, result in a leakage of State secrets or the
distribution of socially destabilizing content. Socially destabilizing content includes any content that incites defiance or violations of PRC laws or regulations or
subversion of the PRC government or its political system, spreads socially disruptive rumors or involves cult activities, superstition, obscenities, pornography,
gambling or violence. Under PRC law, state secrets are defined broadly to include information concerning PRC national defense, state affairs and other matters
as determined by the PRC authorities.
In December 2005, the Ministry of Public Security promulgated Provisions on Technological Measures for Internet Security Protection. These
measures and the Administrative Measures on Internet Information Services require all ICP operators to keep records of certain information about their users
(including user registration information, log-in and log-out time, IP address, content and time of listings by users) for at least 60 days and submit the above
information as required by laws and regulations. The ICP operators must regularly update information security and censorship systems for their websites with
local public security authorities, and must also report any public dissemination of prohibited content. If an ICP operator violates these measures, the PRC
government may revoke its ICP license and shut down its websites. Pursuant to the Decision on Strengthening Network Information Protection issued by the
Standing Committee of the PRC National People’s Congress in December 2012, ICP operators must request identity information from users when ICP operators
provide information publication services to the users. If ICP operators come across prohibited information, they must immediately cease the transmission of
such information, delete the information, keep relevant records, and report to relevant government authorities. In July 2013, the MIIT promulgated the
Regulation on Protection of Personal Information of Telecommunications and Internet Users to provide for more detailed rules in this respect.
In addition, the State Secrecy Bureau has issued provisions authorizing the blocking access to any website it deems to be leaking state secrets or failing
to comply with the relevant legislation regarding the protection of state secrets.
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As Nanjing Tuniu is an ICP operator, it is subject to the laws and regulations relating to information security. To comply with these laws and
regulations, it has completed the mandatory security filing procedures with the local public security authorities, regularly update their information security and
content-filtering systems with newly issued content restrictions, and maintains records of users’ information as required by the relevant laws and regulations.
Nanjing Tuniu has also taken measures to delete or remove links to content that to its knowledge contains information violating PRC laws and regulations.
Majority of the content posted on our online platform is first screened by our filtering systems. Content containing prohibited words or images is then manually
screened by employees who are dedicated to screening and monitoring content published on our platform and removing prohibited content. We believe that with
these measures in place, no prohibited content under PRC information security laws and regulations should have been publicly disseminated through our online
platform in the past. However, there is significant amount of content posted on our online platform by our users on a daily basis. If any prohibited content is
publicly disseminated in the future and we become aware of it, we will report it to the relevant government authority. We believe these measures taken by us are
generally in compliance with the relevant laws and regulations.
If, despite the precautions, we fail to identify and prevent illegal or inappropriate content from being displayed on or through our online platform, we
may be subject to liability. In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may not be possible for us to
determine in all cases the types of content that could result in liability. To the extent that PRC regulatory authorities find any content displayed on or through
our online platform objectionable, they may require us to limit or eliminate the dissemination or availability of such content or impose penalties, including the
revocation of our operating licenses or the suspension or shutdown of our online operations. In addition, the costs of compliance with these regulations may
increase as the volume of content and the number of users on our online platform increases.
Regulations on Internet Privacy
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of these rights.
In recent years, PRC government authorities have promulgated laws and regulations on Internet use to protect personal information from any unauthorized
disclosure. The Decision on Strengthening Network Information Protection and the Regulation on Protection of Personal Information of Telecommunication
and Internet Users provide that information that identifies a citizen, the time or location for his use of telecommunication and Internet services, or involves
privacy of any citizen such as his birth date, ID card number, and address is protected by law and must not be unlawfully collected or provided to others. ICP
operators collecting or using personal electronic information of citizens must specify the purposes, manners and scopes of information collection and uses,
obtain consent of the relevant citizens, and keep the collected personal information confidential. ICP operators are prohibited from disclosing, tampering with,
damaging, selling or illegally providing others with, collected personal information. ICP operators are also prohibited from collection and use of personal
information after a user has stopped using the services. ICP operators are required to take technical and other measures to prevent the collected personal
information from any unauthorized disclosure, damage or loss as well as conducting a self-examination of their protection of personal information at least once
a year. The Administrative Measures on Internet Information Services prohibit an ICP operator from insulting or slandering a third party or infringing upon the
lawful rights and interests of a third party. Pursuant to the Internet Electronic Bulletin Service Administrative Measures, ICP operators that provide electronic
messaging services must keep users’ personal information confidential and must not disclose the personal information to any third party without the users’
consent or unless required by law. The relevant telecommunications authorities are further authorized to order ICP operators to rectify unauthorized disclosure.
ICP operators are subject to legal liability, including warnings, fines, confiscation of illegal gains, revocation of licenses or filings, closing of the relevant
websites, administrative punishment, criminal liabilities, or civil liabilities, if they violate relevant provisions on Internet privacy. Such requirements are
reiterated by the Regulation on Protection of Personal Information of Telecommunications and Internet Users. If an ICP operator appoints an agent to undertake
any marketing and technical services that involve the collection or use of personal information, the ICP operator is required to supervise and manage the
protection of such information. Any violation may subject the ICP operators to warnings, fines, disclosure to the public and, in the most severe cases, criminal
liability. The PRC government, however, has the power and authority to order ICP operators to turn over personal information if an Internet user posts any
prohibited content or engages in illegal activities on the Internet.
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Regulations on Air-ticketing
Air-ticketing business is subject to the supervision of the China Aviation Transportation Association, or CATA, and its regional branches. Currently
the principal regulation governing air-ticketing agencies in China is the Rules on Certification of Qualification for Civil Aviation Transport Sales Agencies, or
the Air Ticketing Rules, issued by the CATA, which became effective on March 31, 2006. Under the Air Ticketing Rules and relevant foreign investment
regulations, any company acting as an air-ticketing sale agency must obtain approval from the CATA, and a foreign investor currently cannot own 100% of an
air-ticketing agency in China, except for qualified Hong Kong and Macau aviation marketing agencies. In addition, foreign-invested air-ticketing agencies are
not permitted to sell passenger airline tickets for domestic flights in China, except for Hong Kong and Macau aviation marketing agencies. In addition, CATA
issued the Supplementary Rules Regarding Sales via the Internet in 2008. These Supplementary Rules provide that, effective as of June 1, 2008, if an air-
ticketing sales agency would like to engage in sales via the Internet, it must obtain an ICP license from the local counterpart of the MIIT and must complete a
commercial website registration with the local counterpart of the SAIC. Although we request that our travel suppliers provide their licenses or permits to us
before entering into agreements with them, we cannot ensure that all of our travel suppliers engaged in the air ticketing sales agency service obtained, and
maintained, all necessary permits. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business and Industry—We may not be able to
adequately control and ensure the quality of travel products and services sourced from our travel suppliers. If there is any deterioration in the quality of their
performance, our customers may not continue using our online platform.”
Regulations on Hotel Operation
In November 1987, the Ministry of Public Security issued the Measures for the Control of Security in the Hotel Industry, and in June 2004, the PRC
State Council promulgated the Decision of the PRC State Council on Establishing Administrative License for the Administrative Examination and Approval
Items Really Necessary To Be Retained. Under these two regulations, anyone who applies to operate a hotel is subject to examination and approval by the local
public security authority and must obtain a special industry license. The Measures for the Control of Security in the Hotel Industry impose certain security
control obligations on the operators. For example, the hotel must examine the identification card of any guest to whom accommodation is provided and make an
accurate registration. The hotel must also report to the local public security authority if it discovers anyone violating the law or behaving suspiciously, or an
offender wanted by the public security authority.
In April 1987, the PRC State Council promulgated the Public Area Hygiene Administration Regulation, which requires hotels to obtain a public area
hygiene license before opening for business. In March 2011, the Ministry of Health promulgated the Implementation Rules of the Public Area Hygiene
Administration Regulation, which require, starting from May 1, 2011, hotel operators to establish hygiene administration system and keep records of hygiene
administration. In February 2009, the Standing Committee of the National People’s Congress, or the SCNPC, enacted the PRC Law on Food Safety, which
requires any hotel that provides food to obtain a food service license.
The Fire Prevention Law, as amended by the SCNPC in October 2008, and the Provisions on Supervision and Inspection on Fire Prevention and
Control, promulgated by the Ministry of Public Security and effective as of May 1, 2009, require that public gathering places such as hotels submit a fire
prevention design plan in order to apply for completion acceptance of fire prevention facilities for their construction projects and to pass a fire prevention safety
inspection by the local public security fire department, which is a prerequisite for opening business.
In January 2006, the PRC State Council promulgated the Regulations for Administration of Entertainment Places. In March 2006, the Ministry of
Culture issued the Circular on Carrying Out the Regulations for Administration of Entertainment Places. Under these regulations, hotels that provide
entertainment facilities, such as discos or ballrooms, are required to obtain a license for entertainment business operations.
We cannot ensure that all of the hotels that we offer to our customers have obtained, and maintained, all necessary permits and licenses. See “Item 3.
D. Key Information—Risk Factors—Risks Related to Our Business and Industry—We may not be able to adequately control and ensure the quality of travel
products and services sourced from our travel suppliers. If there is any deterioration in the quality of their performance, our customers may not continue using
our online platform.”
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Regulations on Travel Companies
The travel industry is subject to the supervision of the China National Tourism Administration, or CNTA, and local tourism administrations. The
principal regulations governing travel companies in China include: (i) the Regulation on Travel Companies, or the Travel Company Regulations, issued by the
PRC State Council in February 2009, which became effective as of May 1, 2009, and which replaced the Administration of Travel Companies Regulations
(1996), (ii) the Implementation Rules for the Regulation on Travel Companies (the “Travel Company Implementation Rules”), promulgated by the CNTA in
April 2009, which became effective as of May 3, 2009, and (iii) the Tourism Law issued by the Standing Committee of the National People’s Congress on
April 25, 2013, which became effective as of October 1, 2013. Under these regulations, a travel company must obtain a license from the CNTA to conduct
cross-border travel business and a license from the provincial-level tourism administration to conduct domestic travel company business.
The Travel Company Regulations permit foreign investors to establish wholly foreign-owned travel companies, as well as joint ventures and
cooperative travel companies. Foreign-owned travel companies are allowed to open branches nationwide, but are restricted from engaging in overseas travel
business in China, unless otherwise determined by the PRC State Council, or provided under a bilateral free trade agreement between the country and China, or
the closer economic partnership agreements between China, Hong Kong and Macau. The Travel Company Implementation Rules define certain terms used in
the Travel Company Regulations, for example, the definition of “domestic tourism business,” “inbound travel business” and “overseas travel business”, and set
out detailed application requirements to establish a travel company. The Travel Company Implementation Rules also clarify certain aspects of legal liability for
travel companies as prescribed in the Travel Company Regulations.
Pursuant to the Tourism Law, travel companies are prohibited from arranging for compulsory shopping or other activities which charge additional fees
on top of the contract prices that tourists have already paid, unless it is agreed upon by both parties through consultation or requested by the tourists and does
not affect the itinerary of other tourists. Travel companies are required to pay quality deposits for compensation for damage to tourists’ rights and advance
payment of expenses for emergency assistance when the tourists’ personal safety is in danger. Travel companies are required to engage tour guides, who are
required to strictly follow the itineraries and are prohibited from altering arrangement without the consent of customers, suspending to provide services,
requesting tips from tourists, and arranging for compulsory shopping or other activities which charge additional fees on top of the contract prices that tourists
have already paid by way of induction, deception, coercion or in other illegal forms. The information that travel companies release to attract or organize tourists
is required to be authentic and accurate, and no false publicity can be made to mislead tourists. In addition, travel companies conducting business via the
Internet are required to present information of their travel company licenses on their websites, and ensure the truthfulness and accuracy of the travel-related
information they release on their websites. Generally, travel companies soliciting tourists are required to take primary liabilities for any breach of travel
contracts, including personal injury or property loss suffered by the tourists attributable to travel service providers and tour operators at destinations and their
suppliers.
In 2010, CNTA released the Measures for Dealing with Tourism Complaints, which took effect as of July 1, 2010. Under these Measures, authorities
which are responsible for dealing with tourist complaints are required to render a decision on the complaints within 60 days after the date of receipt thereof.
Although we take measures, such as requesting travel suppliers to provide their relevant permits and/or licenses, we cannot make sure that all of our
travel suppliers maintained all necessary permits. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business and Industry—We may not
be able to adequately control and ensure the quality of travel products and services sourced from our travel suppliers. If there is any deterioration in the quality
of their performance, our customers may not continue using our online platform.”
In November 2010, CNTA and China Insurance Regulatory Commission jointly promulgated the Measures for the Administration of the Liability
Insurance of Travel Companies, or the Liability Insurance Measures, which became effective as of February 1, 2011. Travel companies are required to procure
travel company liability insurance pursuant to the Liability Insurance Measures. The insurance companies are required to, subject to the liability limits provided
under the insurance agreement, reimburse the travel companies for the compensations made by the travel companies for the personal injury or death and the loss
of properties of tourists and the relevant tour guides or tour leaders. Pursuant to the Liability Insurance Measures, the liability limit for the personal injury or
death of each person cannot be less than RMB200,000 (US$30,875). Each of our relevant consolidated affiliated entities engaged in travel agent business has
procured and is covered by valid travel company liability insurance.
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Regulations on Group Buying
In March 2012, the SAIC issued the Opinions on Strengthening the Administration of Online Group Buying Operations, or the Group Buying
Operation Opinions. The Group Buying Operation Opinions stipulate the qualification requirements for operators of group buying websites, and certain other
obligations, such as an examination of the licenses and authorizations of the providers of the relevant products or services offered on the group buying website,
the group buying website operator’s contracts with such suppliers and customers, data protection for consumers, among others. Pursuant to the Group Buying
Operation Opinions, operators of group buying websites must (i) establish a comprehensive after-sales service system, consumer dispute settlement system and
professional customer service team, (ii) ensure that their complaint and customer support channels are smooth, (iii) provide customers with troubleshooting
assistance and feedback in a timely manner, and (iv) comply with the refund requirements of the Consumer Protection Law, which specifically prohibit group
buying website operators from imposing no-refund restrictions or limiting refunds to website credit.
In addition, group buying website operators must also preserve all relevant data for a period of two years following their cessation of operations. In
undertaking promotions, operators of group buying websites must obey the Anti-unfair Competition Law and the Certain Regulations on Prohibiting Unfair
Competition in Prize-attached Sales. The Group Buying Operation Opinions are relatively new and there have been no relevant implementation rules or
interpretations thus far. However, as required by Jiangsu Administration of Telecommunication, Nanjing Tuniu, our consolidated affiliated entity, obtained a
license of online data processing and transaction which will expire in March 2019 in order to engage in the group buying business. Subject to any clarifications
or interpretations that may be issued in future as to the Group Buying Operation Opinions, we might need to adjust our operational or contracting practices.
Regulations on Consumer Rights Protection
According to the PRC Consumer Protection Law, as amended on October 25, 2013 and became effective as of March 15, 2014, the rights and interests
of consumers that purchase or use commodities or that receive services for consumption purposes in daily life is required to be protected, which includes the
right to personal safety and the safety of property, the right to be informed about goods and services offered for sale, the right to free choice when selecting
goods or services and the right to enjoy fair dealings, respect for their personal dignity and ethnic customs, and compensation for damages suffered.
Correspondingly, a business operator providing a commodity or service to a consumer is subject to a number of requirements, which includes to ensure
that commodities and services meet with certain safety requirements, to disclose serious defects of a commodity or a service and to adopt preventive measures
against damage occurring, to provide consumers with accurate information and to refrain from conducting false advertising, and not to set unreasonable or
unfair terms for consumers or alleviate or release itself from civil liability for harming the lawful rights and interests of consumers by means of standard
contracts, circulars, announcements, shop notices or other means. A business operator may be subject to civil liabilities for failing to fulfill the obligations
discussed above. These liabilities include restoring the consumer’s reputation, eliminating the adverse effects suffered by the consumer, offering an apology and
compensating for any losses incurred. The following penalties may also be imposed upon business operators for any infraction: issuance of a warning,
confiscation of any illegal income, imposition of a fine, an order to cease business operation, revocation of its business license or imposition of criminal
liabilities under circumstances that are specified in laws and statutory regulations.
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The amended Consumer Protection Law further strengthens the protection of consumers and imposes more stringent requirements and obligations on
business operators, especially on the business operators through the internet. The consumers whose interests are harmed due to their purchase of goods or
acceptance of services on online marketplace platforms may claim damages from sellers or service providers. As to legal liabilities of the online marketplace
platform provider, the Consumer Protection Law set forth that, where a consumer purchases products or accepts services via an online trading platform and his
or her interests are prejudiced, if the online trading platform provider fails to provide the name, address and valid contact information of the seller, the
manufacturer or the service provider, the consumer is entitled to demand compensation from the online trading platform provider. If the online trading platform
provider gives an undertaking that is more favorable to consumers, it shall perform such undertaking. Once the online trading platform provider has paid
compensation, it shall have a right of recourse against the seller, the manufacturer or the service provider. If an online trading platform provider is aware or
ought to have been aware that a seller, manufacturer or service provider is using the online platform to infringe upon the lawful rights and interests of consumers
and it fails to take necessary measures, it shall bear joint and several liabilities with the seller, the manufacturer or service provider for such infringement. The
Tort Liability Law of the PRC, which was enacted by the Standing Committee of the National People’s Congress on December 26, 2009, also provides that if an
online service provider is aware that an online user is committing infringing activities, such as selling counterfeit products, through its internet services and fails
to take necessary measures, it shall be jointly liable with the said online user for such infringement. If the online service provider receives any notice from the
infringed party on any infringing activities, the online service provider shall take necessary measures, including deleting, blocking and unlinking the infringing
content, in a timely manner. Otherwise, it will be jointly liable with the relevant online user for the extended damages.
In December 2003, the Supreme People’s Court in China enacted the Interpretation of Some Issues Concerning the Application of Law for the Trial of
Cases on Compensation for Personal Injury, which further increases the liabilities of business operators engaged in the operation of hotels, restaurants, or
entertainment facilities and subjects such operators to compensatory liabilities for failing to fulfill their statutory obligations to a reasonable extent or to
guarantee the personal safety of others.
In October 2010, the Supreme People’s Court of China issued the Provisions on Issues Concerning the Application of Law for the Trial of Cases on
Tourism-related Disputes, which establish liabilities for tour operators and tourism support service providers in the event of contract disputes, personal injury
and property damage involving tourists.
Although we take certain measures to monitor the qualities of the travel products and services provided by our travel suppliers and handle customer
complaints, we cannot ensure that these measures are sufficient to protect consumer rights, or customer dispute can be handled and resolved in a timely fashion.
See “Item 3. D. Key Information—Risk Factors—Risks Related to Our Business and Industry—We may not be able to adequately control and ensure the quality
of travel products and services sourced from our travel suppliers. If there is any deterioration in the quality of their performance, our customers may seek
damages from us and not continue using our online platform.”
Regulations on Advertising Business
The SAIC is the primary governmental authority regulating advertising activities, including online advertising, in China. Regulations that apply to
advertising business primarily include:
(cid:120) Advertisement Law of the People’s Republic of China, promulgated by the Standing Committee of the National People’s Congress as amended on
April 24, 2015 and effective since September 1, 2015;
(cid:120) Administrative Regulations for Advertising, promulgated by the PRC State Council on October 26, 1987 and effective since December 1, 1987;
and
(cid:120)
Implementation Rules for the Administrative Regulations for Advertising, promulgated by the PRC State Council on January 9, 1988 and amended
on December 3, 1998, December 1, 2000 and November 30, 2004, respectively.
According to the above regulations, companies that engage in advertising activities must each obtain, from the SAIC or its local branches, a business
license which specifically includes operating an advertising business in its business scope. An enterprise engaging in advertising business within the
specifications in its business scope does not need to apply for an advertising operation license, provided that such enterprise is not a radio station, television
station, newspaper or magazine publisher or any other entity otherwise specified in the relevant laws or administrative regulations. Enterprises conducting
advertising activities without such a license may be subject to penalties, including fines, confiscation of advertising income and orders to cease advertising
operations. The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation
of any relevant laws or regulations.
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Under the Rules for Administration of Foreign Invested Advertising Enterprises, which were jointly promulgated by the SAIC and the Ministry of
Commerce on March 2, 2004 and amended on August 22, 2008, certain foreign investors are permitted to hold direct equity interests in PRC advertising
companies. A foreign investor in a Chinese advertising company is required to have prior direct advertising operations as its main business outside China for
two years if the Chinese advertising company is a joint venture, or three years if the Chinese advertising company is a wholly foreign-owned enterprise. Since
we have not been involved in the advertising industry outside of China for the required number of years, we are not permitted to hold direct equity interests in
PRC companies engaging in the advertising business. Therefore, we conduct our advertising business through Nanjing Tuniu, which holds a business license
that covers advertising in its business scope. The Rules for Administration of Foreign Invested Advertising Enterprises has been abolished on June 29, 2015.
PRC advertising laws and regulations set certain content requirements for advertisements in China, including, among other things, prohibitions on false
or misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement
of the public interest. Advertisers, advertising agencies, and advertising distributors are required to ensure that the content of the advertisements they prepare or
distribute is true and in full compliance with applicable laws. In providing advertising services, advertising operators and advertising distributors must review
the supporting documents provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws and
regulations. Prior to distributing advertisements that are subject to government censorship and approval, advertising distributors are obligated to verify that such
censorship has been performed and approval has been obtained. Violation of these regulations may result in penalties, including fines, confiscation of
advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. Where
serious violations occur, the SAIC or its local branches may revoke such offenders’ licenses or permits for their advertising business operations.
Regulations on Intellectual Property Rights
The PRC has adopted legislation governing intellectual property rights, including trademarks, domain names and copyrights.
Trademark
The PRC Trademark Law and its implementation rules protect registered trademarks. The PRC Trademark Office of the SAIC is responsible for the
registration and administration of trademarks throughout the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to trademark
registration. As of December 31, 2015, we had 139 registered trademarks in different applicable trademark categories and were in the process of applying to
register 240 trademarks in China.
In addition, pursuant to the PRC Trademark Law, counterfeit or unauthorized production of the label of another person’s registered trademark, or sale
of any label that is counterfeited or produced without authorization will be deemed as an infringement to the exclusive right to use a registered trademark. The
infringing party will be ordered to stop the infringement immediately, a fine may be imposed and the counterfeit goods will be confiscated. The infringing party
may also be held liable for the right holder’s damages, which will be equal to the gains obtained by the infringing party or the losses suffered by the right holder
as a result of the infringement, including reasonable expenses incurred by the right holder for stopping the infringement. If the gains or losses, or royalties are
difficult to determine, the court may render a judgment awarding damages of up to RMB3,000,000 (US$463,122).
Domain Name
Domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by the MIIT in November 2004. The
MIIT is the major regulatory body responsible for the administration of the PRC Internet domain names, under supervision of which the China Internet Network
Information Center, or CNNIC, is responsible for the daily administration of .cn domain names and Chinese domain names. In September 2002, the CNNIC
issued the Implementation Rules for Domain Name Registration setting forth rules for registration of domain names, as amended in June 2009 and May 2012.
CNNIC adopts the “first to file” principle with respect to the registration of domain names. As of December 31, 2015, we had 100 registered domain names,
including www.tuniu.com.
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Copyright
Works are protected under the PRC Copyright Law adopted by the National People’s Congress in 1990, as amended in 2001 and 2010, as well as its
implementation rules adopted by the State Council in 1991, as amended in 2002 and 2011. Whether such protected works are published or not, copyrights duly
obtained and enjoyed by the author or other copyright owner remain unaffected. Copyright owners, however, could register such protected works on a voluntary
basis with National Copyright Administration or its local counterparts. We have registered 11 artwork copyrights in China.
Pursuant to the PRC Copyright Law and its implementation rules, creators of protected works enjoy personal and property rights, including, among
others, the right of disseminating the works through information network. Pursuant to the relevant PRC regulations, rules and interpretations, Internet service
providers will be jointly liable with the infringer if they (i) participate in, assist in or abet infringing activities committed by any other person through the
Internet, (ii) are or should be aware of the infringing activities committed by their website users through the Internet, or (iii) fail to remove infringing content or
take other action to eliminate infringing consequences after receiving a warning with evidence of such infringing activities from the copyright holder. In
addition, where an ICP service operator is clearly aware of the infringement of certain content against another’s copyright through the Internet, or fails to take
measures to remove relevant contents upon receipt of the copyright owner’s notice, and as a result, it damages the public interest, the ICP service operator could
be ordered to stop the tortious act and be subject to other administrative penalties such as confiscation of illegal income and fines. To comply with these laws
and regulations, we have implemented internal procedures to monitor and review the content we have licensed from content providers before they are released
on our website and remove any infringing content promptly after we receive notice of infringement from the legitimate rights holder.
Software Copyrights
The Administrative Measures on Software Products, issued by the MIIT in October 2000 and subsequently amended in March 2009, provides a
registration and filing system with respect to software products made in or imported into China. These software products may be registered with the relevant
local authorities in charge of software industry administration. Registered software products may enjoy preferential treatment status granted by relevant software
industry regulations. Software products can be registered for five years, and the registration is renewable upon expiration.
In order to further implement the Computer Software Protection Regulations promulgated by the PRC State Council in December 2001, amended in
2011 and 2013, the State Copyright Bureau issued the Computer Software Copyright Registration Procedures in February 2002, amended in 2014, which apply
to software copyright registration, license contract registration and transfer contract registration. As of December 31, 2015, we had 34 registered computer
software copyrights in China.
Patents
Patents are protected under the PRC Patent Law adopted by the National People’s Congress in 1984, as amended in 1992, 2000 and 2008, as well as its
implementation rules adopted by the State Council in 1985, as amended in 1992, 2001, 2002 and 2010. The Patent Office under the State Intellectual Property
Office is responsible for receiving, examining and approving patent application. A patent is valid for a term of 20 years in the case of an invention and a term of
10 years in the case of utility models and designs. A third-party user must obtain consent or a proper license from the patent owner to use the patent. Otherwise,
the use constitutes an infringement of patent rights. As of December 31, 2015, we had one registered patent, and were in the process of applying to register 12
patents in China.
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Tort Liability Law
In accordance with the Tort Liability Law promulgated by the Standing Committee of the National People’s Congress in December 2009, which
became effective as of July 1, 2010, Internet users and Internet service providers bear tortious liabilities in the event they infringe other persons’ rights and
interests through the Internet. Where an Internet user conducts tortious acts through Internet services, the infringed person has the right to request the Internet
service provider to take necessary actions such as deleting contents, screening and delinking. The Internet service provider, failing to take necessary actions
after being informed, will be subject to joint and several liabilities with the Internet user with regard to the additional damages incurred. If an Internet service
provider knows an Internet user is infringing other persons’ rights and interests through its Internet service but fails to take necessary action, it shall be jointly
and severally liable with the Internet user. We have internal policies designed to reduce the likelihood that user content may be used without proper licenses or
third-party consents. When we are approached and requested to remove content uploaded by users on the grounds of infringement, we investigate the claims and
remove any uploads that appear to infringe the rights of a third party after our reasonable investigation and determination. However, such policy may not be
effective in preventing the unauthorized listing of copyrighted materials or materials infringing other rights of third parties. See “Item 3.D. Key Information—
Risk Factors—Risks Related to Our Business and Industry—Claims by third parties that we infringe on their intellectual property rights could lead to
government administrative actions and result in significant costs and have a material adverse effect on our business, financial condition and results of
operations.”
Regulations on Foreign Currency Exchange
Pursuant to the Foreign Exchange Administration Regulations, as amended in August 2008, if documents certifying the purpose of the conversion of
Renminbi into foreign currency are submitted to the relevant foreign exchange conversion bank, the Renminbi is convertible for current account items,
including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as
direct investments, loans, repatriation of investments and investments in securities outside of China, unless SAFE’ s prior approval is obtained and prior
registration with SAFE is made. In May 2013, SAFE promulgated SAFE Circular 21 which provides for and simplifies the operational steps and regulations on
foreign exchange matters related to direct investment by foreign investors, including foreign exchange registration, account opening and use, receipt and
payment of funds, and settlement and sales of foreign exchange. We generally follow the regulations and apply to obtain the approval of SAFE and other
relevant PRC government authorities. However, we may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to
receive such registrations or approvals, our ability to provide loans or capital contributions to our PRC subsidiaries and our consolidated affiliated entities may
be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
In August 2008, SAFE promulgated a SAFE Circular 142 regulating the conversion, by a foreign-invested enterprise, of foreign currency into
Renminbi by restricting how the converted Renminbi may be used. The SAFE Circular 142 requires that the registered capital of a foreign-invested enterprise
settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the applicable government
authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the registered capital
of a foreign-invested enterprise settled in Renminbi converted from foreign currencies. The use of such Renminbi capital may not be changed without SAFE’ s
approval, and may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of the SAFE Circular 142 will
result in penalties, such as fines. SAFE decided to further reform the foreign exchange administration system in order to satisfy and facilitate the business and
capital operations of foreign invested enterprises, and issued the Circular on the Relevant Issues Concerning the Launch of Reforming Trial of the
Administration Model of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises in Certain Areas on August 4, 2014, or Circular 36. This
circular suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested enterprise registered in such areas with a business scope
including “investment” to use the Renminbi capital converted from foreign currency registered capital for equity investments within the PRC. On March 30,
2015, SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1,
2015. Circular 19 allows foreign-invested enterprises to make equity investments by using Renminbi fund converted from foreign exchange capital. However,
Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted from its foreign exchange capitals for
expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. In addition, SAFE strengthened its
oversight of the flow and use of the Renminbi capital converted from foreign currency registered capital of a foreign-invested company. SAFE also promulgated
a SAFE Circular 45 in November 2011, which, among other things, restricts a foreign-invested enterprise from using Renminbi converted from its registered
capital to provide entrusted loans or repay loans between non-financial enterprises. Circular 45 was abolished on March 19, 2015. These circulars may
significantly limit our ability to use Renminbi converted from net proceeds of our initial public offering and the concurrent private placement and our
subsequent private placement in December 2014 to fund establishment of new PRC subsidiaries, to invest in or acquire any other PRC companies, or establish
new consolidated affiliated entities in the PRC.
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Regulations on Dividend Distribution
The principal regulations governing distribution of dividends of wholly foreign-owned enterprises include the PRC Company Law, as amended in
December 2013, the Wholly Foreign-Owned Enterprise Law, as amended in October 2000, and the Implementation Rules of the Wholly Foreign-Owned
Enterprise Law, as amended in February 2014. Pursuant to these laws and regulations, foreign-invested enterprises in China may pay dividends only out of their
accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China
are required to allocate at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached
50% of the registered capital of the enterprises. In addition, these companies may allocate a portion of their after-tax profits based on PRC accounting standards
to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends.
Regulations on Offshore Financing
Pursuant to a SAFE Circular 37 issued by SAFE on July 4, 2014, which replaced the former circular commonly known as “Safe Circular 75” issued by
SAFE in October 2005, prior registration with the local SAFE branch is required for PRC residents in connection with their direct establish or indirect control of
an offshore entity, for the purposes of overseas investment and financing, with assets or equity interests of onshore companies or offshore assets or interests held
by such PRC residents, referred to in SAFE Circular 37 as a “special purpose vehicle.” The PRC residents are also required to amend the registration or filing
with the local SAFE branch in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital
contributed by PRC residents, share transfer or exchange, merger, division or other material event.
Failure to comply with the registration procedures set forth in the SAFE Circular 37 may result in restrictions being imposed on the foreign exchange
activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions to its offshore parent
or affiliate and the capital inflow from the offshore entities, and may also subject relevant PRC residents to penalties under PRC foreign exchange
administration regulations. PRC residents who control our company from time to time are required to register with SAFE in connection with their investments
in us. We requested PRC residents holding direct or indirect interests in our company to our knowledge to make the necessary applications, filings and
amendments as required under SAFE Circular 75 and other related rules prior to our initial public offering. However, we might not be fully informed of the
identities of all of our beneficial owners who are PRC citizens or residents, and we cannot compel our beneficial owners to comply with the requirements of
SAFE Circular 37. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC citizens or residents have complied with and
will in the future make or obtain any applicable registrations or approvals required by SAFE Circular 37 or other related regulations. See “Item 3.D. Key
Information—Risk Factors—Risks Related to Doing Business in China—PRC regulations relating to offshore investment activities by PRC residents may limit
our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or
otherwise expose us to liability and penalties under PRC laws.”
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Regulations on Employee Stock Option Plans
In February 2012, SAFE promulgated the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option
Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company, which includes
employee stock ownership plans, stock option plans and other incentive plans permitted by relevant laws and regulations, are required to register with SAFE or
its local branches and complete certain other procedures. Participants of a stock incentive plan in an overseas publicly listed company who are PRC residents
must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified institution selected by the PRC
subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. The participants must
also retain an overseas entrusted institution to handle matters in connection with their exercise of stock options, the purchase and sale of corresponding stocks or
interests and fund transfers. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any
material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. The PRC agents must, on behalf of the
PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign
currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the
sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the
PRC opened by the PRC agents before distribution to such PRC residents.
We adopted the 2008 Plan, pursuant to which we may issue options or restricted shares to our qualified employees and consultants on a regular basis.
We also adopted the 2014 Plan, which permits the granting of options to purchase our ordinary shares, restricted shares and restricted share units. The failure of
the share options holders to complete their registration pursuant to the Stock Option Rules and other foreign exchange requirements may subject these PRC
individuals to fines and legal sanctions, and may also limit our ability to contribute additional capital to our PRC subsidiaries, limit our PRC subsidiaries’ ability
to distribute dividends to us or otherwise materially adversely affect our business. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing
Business in China—Failure to comply with PRC regulations regarding the registration requirements for share option plans may subject the PRC plan
participants or us to fines and other legal or administrative sanctions.”
In addition, the State Administration for Taxation has issued circulars concerning employee share options, under which our employees working in the
PRC who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee
share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our employees fail to
pay or if we fail to withhold their income taxes as required by relevant laws and regulations, we may face sanctions imposed by the PRC tax authorities or other
PRC government authorities.
Regulations on Overseas Listing
Six PRC regulatory agencies, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors, or the M&A Rules, which became effective on September 8, 2006 and which were amended on June 22, 2009, with such amendments becoming
effective as of the same date. The M&A Rules, among other things, require offshore SPVs formed for overseas listing purposes through acquisitions of PRC
domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas
stock exchange.
While the application of this new regulation remains unclear, we believe, based on the advice of our PRC counsel, Fangda Partners, that CSRC
approval was not required in the context of our initial public offering because (1) CSRC currently has not issued any definitive rule or interpretation concerning
whether offerings like initial public offerings are subject to this regulation and (2) we established our PRC subsidiaries by means of direct investment other than
by merger or acquisition of PRC domestic companies and no explicit provision in the M&A Rules classifies the contractual arrangements between Beijing
Tuniu, our PRC subsidiary, Nanjing Tuniu, our consolidated affiliated entity, and its shareholders as a type of acquisition transaction falling under the M&A
Rules. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—The approval of the China Securities Regulatory
Commission may have been required in connection with our earlier initial public offering under a regulation adopted in August 2006, and, if required, we cannot
assure you that we will be able to obtain such approval.”
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Regulations on Employment
The PRC Labor Law, the PRC Labor Contract Law and its implementation rules provide requirements concerning employment contracts between an
employer and its employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the
employment relationship is established, the employer would be deemed to have entered into a labor contract without a fixed term with such employee. In
addition, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s
salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the
execution of the written employment contract. The Labor Contract Law and its implementation rules also require compensation to be paid upon certain
terminations. In addition, if an employer intends to enforce a non-compete provision with an employee in an employment contract or non-competition
agreement, it has to compensate the employee on a monthly basis during the term of the restriction period after the termination or ending of the labor contract.
Employers in most cases are also required to provide a severance payment to their employees after their employment relationships are terminated.
Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds,
namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a
housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the
employees as specified by the local government from time to time at locations where they operate their businesses or where they are located.
Regulations on Taxation
For a discussion of applicable PRC tax regulations, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Taxation.”
C.
Organizational Structure
The following diagram illustrates our corporate structure, including our principal subsidiaries and consolidated affiliated entities, as of the date of this
annual report on Form 20-F:
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(1) Messrs. Dunde Yu, Haifeng Yan, Tong Wang, Jiping Wang, Xin Wen, Yongquan Tan and Haifeng Wang hold 28.66%, 19.11%, 7.71%, 4.82%, 0.96%,
0.96% and 37.78% equity interests in Nanjing Tuniu, respectively. Among the shareholders of Nanjing Tuniu, Messrs. Dunde Yu and Haifeng Yan are
founders, directors and ultimate shareholders of Tuniu Corporation. Messrs. Tong Wang, Jiping Wang, Xin Wen and Yongquan Tan are ultimate
shareholders of Tuniu Corporation. Mr. Haifeng Wang is an employee of one of our shareholders.
Agreements that Provide us with Effective Control over Nanjing Tuniu
Purchase Option Agreement. Pursuant to the purchase option agreement entered into on September 17, 2008, restated and amended on January 24,
2014 and further restated and amended on March 19, 2014, each of the shareholders of Nanjing Tuniu irrevocably and exclusively grants Beijing Tuniu an
option to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part of such
shareholder’s equity interests in Nanjing Tuniu. The aggregate purchase price is RMB2.4 million (US$0.4 million). The shareholders of Nanjing Tuniu agree,
without the prior written consent of Beijing Tuniu, not to transfer or otherwise dispose of their equity interests in Nanjing Tuniu, pledge their equity interests or
create any encumbrance on their equity interests. The agreement remains effective until all equity interests held in Nanjing Tuniu by the shareholders of Nanjing
Tuniu are transferred or assigned to Beijing Tuniu or its designated person or persons. The purchase price has been prepaid by Beijing Tuniu to the shareholders
of Nanjing Tuniu.
Equity Interest Pledge Agreement. Pursuant to the equity interest pledge agreement entered into on September 17, 2008 and supplemented on
March 19, 2014, each of the shareholders of Nanjing Tuniu pledges all of such shareholder’s equity interests in Nanjing Tuniu to guarantee the performance of
the obligations under the purchase option agreement. If the shareholders of Nanjing Tuniu breach their contractual obligations under the purchase option
agreement, Beijing Tuniu, as the pledgee, will have the right to either conclude an agreement with the pledgor to obtain the pledged equity or seek payments
from the proceeds of the auction or sell-off of the pledged equity to any person pursuant to the PRC law. The shareholders of Nanjing Tuniu agree that, during
the term of the equity interest pledge agreement, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity
interests. During the equity pledge period, Beijing Tuniu is entitled to all dividends and other distributions made by Nanjing Tuniu. The equity interest pledge
became effective on the date when the equity interest pledge was registered with the relevant local administration for industry and commerce, and remains
effective until the shareholders of Nanjing Tuniu discharge all their obligations under the purchase option agreement, or Beijing Tuniu enforces the equity
interest pledge, whichever is earlier. We have completed the registration of the equity interest pledge with Xuanwu Branch of Nanjing Administration for
Industry and Commerce.
Shareholders’ Voting Rights Agreement. Pursuant to the shareholders’ voting rights agreement entered into on September 17, 2008, the shareholders
of Nanjing Tuniu appointed Beijing Tuniu or its designated person as their attorney-in-fact to exercise all of their voting and related rights with respect to their
equity interests in Nanjing Tuniu, including attending shareholders’ meetings, voting on all matters of Nanjing Tuniu requiring shareholder approval,
nominating and appointing directors, convening extraordinary shareholders’ meetings, and other voting rights pursuant to the then-effective articles of
association of Nanjing Tuniu. The shareholders’ voting rights agreement will remain in force until all the parties to the agreement mutually agree to terminate
the agreement in writing or cease to be shareholders of Nanjing Tuniu.
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Irrevocable Powers of Attorney. Pursuant to the powers of attorney dated January 24, 2014, the shareholders of Nanjing Tuniu each irrevocably
appointed Beijing Tuniu as the attorney-in-fact to exercise all of such shareholder’s voting and related rights with respect to such shareholder’s equity interests
in Nanjing Tuniu, including but not limited to attending shareholders’ meetings, voting on all matters of Nanjing Tuniu requiring shareholder approval,
nominating and appointing directors, convening extraordinary shareholders’ meetings, and other voting rights pursuant to the then-effective articles of
association of Nanjing Tuniu. Each power of attorney will remain in force until the shareholders’ voting rights agreement expires or is terminated. These powers
of attorney replaced the powers of attorney previously granted to a person designated by Beijing Tuniu on September 17, 2008.
Agreement that Allows us to Receive Economic Benefits from Nanjing Tuniu
Cooperation Agreement. Under the cooperation agreement entered into on September 17, 2008 and restated and amended on January 24, 2014, Beijing
Tuniu has the exclusive and irrevocable right to provide to Nanjing Tuniu business consulting, technical consulting and technical services related to the
businesses of Nanjing Tuniu and its subsidiaries. Beijing Tuniu owns the exclusive intellectual property rights created by Nanjing Tuniu or its employees as a
result of the performance of this agreement. Beijing Tuniu has the right to receive, or designate a person or persons to receive, a quarterly service fee, which
equals the profits of each of Nanjing Tuniu and its subsidiaries, to which it provides such business consulting, technical consulting and technical services,
provided that such amount of service fees can be adjusted by Beijing Tuniu at its sole discretion. This agreement will remain effective until expiration of Beijing
Tuniu’s business term, unless Beijing Tuniu exercises its unilateral right to terminate the agreement, one of the parties is declared bankrupt or Beijing Tuniu is
not able to provide consulting and services as agreed for more than three consecutive years because of force majeure. Nanjing Tuniu is not permitted to
terminate the agreement in any other event.
In 2013, 2014 and 2015, we received service fees of RMB22.6 million, RMB20.5 million and RMB42.4 million (US$6.5 million), respectively, from
our consolidated affiliated entities, which were eliminated on consolidated financial statements.
D.
Property, Plant and Equipment
Our principal executive offices, consisting of our administrative center, sales and marketing division, technical services department, and call center, are
located on leased premises in Nanjing comprising approximately 35,576 square meters. In addition, as of December 31, 2015, we had 160 regional service
centers located in 154 cities across China. We lease these premises under lease agreements from unrelated third parties, and we plan to renew these leases from
time to time as needed. We believe that the facilities we currently lease for our executive offices are adequate to meet our administrative needs for the
foreseeable future, and we believe that we will be able to obtain adequate facilities, principally through the leasing of additional properties, to accommodate our
strategic regional expansion plans of adding more service centers in different parts of China.
Item 4A.
Unresolved Staff Comments
Not applicable.
Item 5.
Operating and Financial Review and Prospects
The following discussion of our financial condition and results of operations is based upon, and should be read in conjunction with, our audited
consolidated financial statements and the related notes included in this annual report on Form 20-F. This report contains forward-looking statements. See
“Forward-Looking Information.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3.D. Key
Information—Risk Factors” in this annual report on Form 20-F. We caution you that our businesses and financial performance are subject to substantial risks
and uncertainties.
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A.
Operating Results
Overview
We are a leading online leisure travel company in China. We offer a large selection of packaged tours, including organized tours and self-guided tours,
as well as travel-related services for leisure travelers. We started offering packaged tours online in 2007, and have sold approximately five million packaged
tours since our inception. As of December 31, 2015, we offered packaged tours sourced from over 11,000 travel suppliers, covering over 150 countries as well
as all popular tourist attractions in China. Our product portfolio consists of over 600,000 stock keeping units, or SKUs, of organized tours, over 850,000 SKUs
of self-guided tours, and tickets for over 1,000 domestic and overseas tourist attractions. Our core strength is in overseas leisure travel products and services,
which contributed over 65% of our gross bookings in 2015. In 2015, the number of orders placed through our mobile platform accounted for approximately
70% of total orders placed through our online platform and average daily unique visitors to our mobile platform accounted for approximately 70% of the
average daily unique visitors to our online platform.
We have achieved significant growth in recent years. Our net revenues increased from RMB1,949.7 million in 2013 to RMB3,534.9 million in 2014
and further to RMB7,645.3 million (US$1,180.2 million) in 2015, representing a CAGR of 98.0%. We had a net loss of RMB79.6 million, RMB447.9 million,
and RMB1,462.4 million (US$225.8 million) in 2013, 2014 and 2015 respectively. We generally collect payments from our customers upon contract
confirmation before we pay our travel suppliers. Our net cash provided by operating activities was RMB116.7 million in 2013, and our net cash used in
operating activities was RMB271.1 million and RMB514.7 million (US$79.5 million) in 2014 and 2015, respectively.
Our ability to achieve and maintain profitability depends on our ability to effectively reduce our costs and expenses as a percentage of our net revenues.
Our cost of revenues as a percentage of our net revenues remained relatively stable at 93.8% in 2013 and 93.6% in 2014 and increased to 95.2% in 2015. Cost to
suppliers of our organized tours, which were attributed solely to revenues from organized tours, accounted for 92.4%, 92.2% and 94.1% of our revenues from
organized tours in 2013, 2014 and 2015, respectively. Our operating expenses as a percentage of our net revenues increased from 11.1% in 2013 to 19.8% in
2014 and further to 23.9% in 2015. Such increase was primarily due to higher levels of spending associated with our rapidly expanding business operations,
including expenses related to regional expansion, branding and advertising campaigns, mobile related initiatives and expenses related to technology, product
development and administrative personnel such as share-based compensation. Our past results of operations should not be taken as indicative of our future
performance. We plan to continue our sales and marketing efforts using offline and online media to further increase our brand recognition and market share. Our
sales and marketing expenses increased from RMB110.1 million in 2013 to RMB434.2 million in 2014 and further to RMB1,154.2 million (US$178.2 million)
in 2015. We also expect our share-based compensation expenses to continue to increase. As a result, we expect our operating expenses to continue to increase in
the absolute amount. If we fail to effectively reduce our costs and expenses as a percentage of our net revenues, we may not be able to achieve and maintain
profitability.
Selected Income Statement Items
Revenues
We generate revenues primarily from sales of packaged tours, which consist of organized tours and self-guided tours. Substantially all of our revenues
from organized tours are recognized on a gross basis, which represents amounts received from customers, as we act as the principal in these transactions.
Revenues from self-guided tours are recognized on a net basis, representing the difference between the amount received from customers and the amount due to
our travel suppliers, as we act as an agent for travel suppliers. See also “—Critical Accounting Policies and Estimates.”
The following table sets forth the components of our revenues in absolute amounts and as percentages of our net revenues for the periods presented:
2013
RMB
%
For the Year Ended December 31,
2014
RMB
%
(in thousands, except percentages)
RMB
2015
US$
%
Revenues:
Organized tours
Self-guided tours
Others
Total revenues
Less: Business and related taxes
1,892,826
48,901
20,744
1,962,471
(12,784)
97.1%
2.5
1.1
3,432,825
93,126
28,756
97.1%
2.6
0.8
7,358,879
194,162
127,745
1,136,015
29,973
19,720
100.7
(0.7)
3,554,707
(19,768)
100.6
(0.6)
7,680,786
(35,526)
1,185,708
(5,484)
96.3%
2.5
1.7
100.5
(0.5)
Net revenues
1,949,687
100.0%
3,534,939
100.0%
7,645,260
1,180,224
100.0%
66
The following table sets forth the number of trips of our organized tours and self-guided tours for the periods presented:
Number of trips:
Organized tours (excluding local tours)
Local tours
Self-guided tours
2013
For the Year Ended December 31,
2014
(in thousands)
2015
367
687
221
712
1,074
396
1,633
1,702
1,114
Organized tours. Substantially all of our revenues from organized tours are recognized on a gross basis, which represent amounts received from
customers. From 2014 to 2015, our revenues from organized tours increased by 114.4% from RMB3,432.8 million to RMB7,358.9 million (US$1,136.0
million). From 2013 to 2014, our revenues from organized tours increased by 81.4% from RMB1,892.8 million to RMB3,432.8 million. The increase was
primarily due to the rapid growth in demand for travel to certain international destinations, such as Europe, Southeast Asia, Japan, and North America and for
domestic tours. Revenues from organized tours accounted for 97.1%, 97.1% and 96.3% of our net revenues in 2013, 2014 and 2015, respectively. We expect
that revenues from organized tours will continue to constitute a large majority of our net revenues in the foreseeable future.
Self-guided tours. Revenues from self-guided tours represent the difference between amounts received from our customers and amounts due to our
travel suppliers. From 2014 to 2015, our revenues from self-guided tours increased by 108.5% from RMB93.1 million to RMB194.2 million (US$30.0 million).
From 2013 to 2014, our revenues from self-guided tours increased by 90.4% from RMB48.9 million to RMB93.1 million. The increase in revenues from self-
guided tours was primarily due to the growth in travel to domestic destinations, certain islands and Japan. Primarily due to the fact that our revenues from self-
guided tours are recognized on a net basis, we expect that revenues from self-guided tours will continue to constitute a relatively small percentage of our net
revenues in the near future.
Others. Other revenues accounted for 1.1%, 0.8% and 1.7% of our net revenues in 2013, 2014 and 2015 respectively. Our other revenues primarily
comprise revenues generated from (i) service fees received from insurance companies, (ii) other travel-related services, such as sales of tourist attraction tickets
and visa processing services, which are recognized on a net basis, (iii) fees for advertising services that we provide primarily to domestic and foreign tourism
boards and bureaus, (iv) commission fees for hotel reservation and air-ticketing, and (v) service fees for financial services.
Cost of Revenues
Our cost of revenues accounted for 93.8%, 93.6% and 95.2% of our net revenues in 2013, 2014 and 2015, respectively. A substantial majority of our
cost of revenues is cost to suppliers of our organized tours, which were attributed solely to revenues from organized tours and accounted for 92.4%, 92.2% and
94.1% of our revenues from organized tours in 2013, 2014 and 2015, respectively. Costs common to all revenue categories accounted for 4.1%, 4.1% and 4.6%
of our total net revenues in 2013, 2014 and 2015, respectively.
Cost to suppliers of our organized tours represents amounts paid to our travel suppliers for the sale of the relevant organized tour products to
customers, net of supplier rebates. See also “Item 4.B. Information on the Company—Business Overview—Supply Chain Management.” Cost to suppliers of
our organized tours generally increases along with the increase in our revenues from organized tours. We expect that cost to suppliers of our organized tours will
continue to increase as revenues from our organized tours continue to grow. As revenues from self-guided tours are recognized on net basis, the amounts we pay
to our travel suppliers for self-guided tours are recorded as a reduction to revenues, rather than cost of revenues, and hence have no impact on our cost of
revenues.
67
Our cost of revenues also includes salaries, commissions, employee welfare expenses, bonuses and contributions to mandatory retirement provident
funds and other headcount-related expenses for our tour advisors, customer service representatives and other personnel directly related to providing products
and services. Other components of our cost of revenues include (i) charges and other direct expenses related to tour transactions such as credit card processing
fees, (ii) office rental and depreciation and other office related expenses and (iii) network maintenance costs such as bandwidth costs and data center costs.
Components of our cost of revenues, other than cost to suppliers of our organized tours, are common to all of our travel products and services which consist of
organized tours, self-guided tours and other travel-related services. As a result, these components cannot be reasonably allocated among different travel products
and services. The following table sets forth the components of our cost of revenues in absolute amounts and as percentages of our net revenues for the periods
presented:
2013
RMB
%
For the Year Ended December 31,
2014
RMB
%
(in thousands, except percentages)
RMB
2015
US$
%
Cost of revenues:
Costs to suppliers for organized tours
Costs common to all revenue
categories
(1,748,702)
(89.7)%
(3,165,128)
(89.5)%
(6,925,520)
(1,069,116)
(90.6)%
(80,963)
(4.1)
(143,673)
(4.1)
(349,155)
(53,900)
(4.6)
Cost of revenues
(1,829,665)
(93.8)%
(3,308,801)
(93.6)%
(7,274,675)
(1,123,016)
(95.2)%
Operating Expenses
Our operating expenses accounted for 11.1%, 19.8% and 23.9% of our net revenues in 2013, 2014 and 2015, respectively. The following table sets
forth the components of our operating expenses in absolute amounts and as percentages of our net revenues for the periods presented:
Operating expenses:
Research and product development
Sales and marketing
General and administrative
Other operating income
2013
RMB
%
For the Year Ended December 31,
2014
RMB
%
(in thousands, except percentages)
RMB
2015
US$
%
(38,994)
(110,071)
(69,679)
1,689
(2.0)%
(5.6)
(3.6)
0.1
(104,881)
(434,191)
(166,988)
6,902
(3.0)%
(12.3)
(4.7)
0.2
(298,199)
(1,154,155)
(385,442)
12,175
(46,034)
(178,171)
(59,502)
1,879
(3.9)%
(15.1)
(5.0)
0.1
Total operating expenses
(217,055)
(11.1)%
(699,158)
(19.8)%
(1,825,621)
(281,828)
(23.9)%
Research and product development expenses. Research and product development expenses primarily comprise salaries and other compensation
expenses for our research and product development personnel as well as office rental, depreciation and other expenses related to our research and product
development function. Research and product development expenses also include expenses that are incurred in connection with the planning and implementation
phases of development and costs that are associated with the maintenance of our online platform or software for internal use. Research and product development
expenses accounted for 2.0%, 3.0% and 3.9% of our net revenues in 2013, 2014 and 2015, respectively. During the same period, our research and product
development expenses increased primarily due to investments for the implementation of additional product categories and initiatives, the increase in direct
procurement related personnel at regional service centers, improvement of online technology, and the rise in technology and product development personnel
related expenses. We expect research and product development expenses to increase in absolute amounts as the results of our continual research and product
development efforts and the increase in share-based compensation expenses.
68
Sales and marketing expenses. Sales and marketing expenses primarily comprise marketing and promotional expenses, salaries and other compensation
expenses for our sales and marketing personnel and office rental, depreciation and other expenses related to our sales and marketing function. Our sales and
marketing expenses accounted for 5.6%, 12.3% and 15.1% of our net revenues in 2013, 2014 and 2015, respectively. During the same period, our sales and
marketing expenses increased primarily due to branding and advertising campaigns, advertisements for our mobile business development, and amortization of
intangible assets acquired from JD.com, Inc. in 2015 in accordance with the business cooperation agreement between our company and JD.com, Inc. We plan to
continue our sales and marketing efforts using offline and online media to further increase our brand recognition and market share. We expect our sales and
marketing expenses to increase in absolute amounts as our business continues to grow and share-based compensation expenses increase.
General and administrative expenses. General and administrative expenses primarily comprise salaries and other compensation expenses for our
administrative personnel, professional service fees, office rental, depreciation and other expenses related to our administrative function. General and
administrative expenses accounted for 3.6%, 4.7% and 5.0% of our net revenues in 2013, 2014 and 2015 respectively. We expect general and administrative
expenses to increase in absolute amounts in the near term as we hire additional personnel and incur additional costs in connection with the expansion of our
business and with being a public company and the increase in share-based compensation expenses.
Other operating income. Other operating income relates primarily to government subsidies that we receive from provincial and local governments.
Government subsidies are granted from time to time at the discretion of the relevant government authorities. These subsidies are granted for general corporate
purposes and to support our ongoing operations in the region. Other operating income accounted for 0.1%, 0.2% and 0.1% of our net revenues in 2013, 2014
and 2015, respectively.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to income or capital gains tax. In
addition, dividend payments are not subject to withholding tax in the Cayman Islands.
Hong Kong
Companies registered in Hong Kong are subject to Hong Kong Profits Tax on the taxable income as reported in their respective statutory financial
statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. Under the Hong Kong tax law, Our Hong
Kong subsidiaries are exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
Our PRC subsidiaries and consolidated affiliated entities are subject to PRC enterprise income tax, or EIT, on the taxable income in accordance with
the relevant PRC income tax laws.
Under the EIT Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC resident
enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the
Implementation Rules, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and
business operations, personnel and human resources, finances and properties of an enterprise. In addition, SAT Circular 82, which was issued in April 2009 by
the State Administration of Taxation, or the SAT, specifies that certain offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise
groups will be classified as PRC resident enterprises if all of the following conditions are met: (a) senior management personnel and core management
departments in charge of the daily operations of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are
subject to determination or approval by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and
files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’ directors or senior management
personnel with voting rights habitually reside in the PRC. Further to SAT Circular 82, the SAT issued SAT Bulletin 45, which took effect on September 1,
2011, to provide more guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled offshore-
incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of PRC resident enterprise status and
administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC
enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals like us, the determining criteria set forth in SAT Circular
82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the PRC resident
enterprise status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
69
Nanjing Tuniu obtained its HNTE certificate in 2010 with a valid period of three years and successfully renewed such certificate in December 2013 for
additional three years. Therefore, Nanjing Tuniu is eligible to enjoy a preferential tax rate of 15% from 2013 to 2015 to the extent it has taxable income under
the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant EIT filing procedures with the relevant tax authority. Nanjing Tuniu
also obtained a software company certificate in 2012. Pursuant to such certificate, Nanjing Tuniu qualifies for a tax holiday during which it is entitled to an
exemption from enterprise income tax for two years commencing from its first profit-making year of operation, which occurred in 2014, and a 50% reduction of
enterprise income tax for the following three years. However, if we are considered a PRC resident enterprise and earn income other than dividends from our
PRC subsidiary, a 25% enterprise income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow
and profitability.
Under the EIT Law and its Implementation Rules, subject to any applicable tax treaty or similar arrangement between the PRC and our investors’
jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally applicable to dividends from
PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of business in the PRC, or which have
such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Any gain realized on the
transfer of American depositary shares or shares by such non-PRC resident enterprise investors is also subject to 10% PRC income tax if such gain is regarded
as income derived from sources within the PRC unless a tax treaty or similar arrangement provides otherwise. Under the PRC Individual Income Tax Law and
its implementation rules, dividends from sources within the PRC paid to foreign individual investors who are not PRC residents are generally subject to a PRC
withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of American depositary shares or shares are generally
subject to 20% PRC income tax, in each case, subject to any reduction or exemption set forth in applicable tax treaties and PRC laws. Although substantially all
of our business operations are based in China, it is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain realized from the
transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and as a result be subject to PRC income tax if we
were considered a PRC resident enterprise, as described above. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—
Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes. Such classification
would likely result in unfavorable tax consequences to us and our non-PRC shareholders and would have a material adverse effect on our results of operations
and the value of your investment.”
Pursuant to the applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay
business taxes at the rate of 5% on the revenues generated from providing such services. Entities engaging in the travel business can deduct certain approved
costs from their revenues in calculating business taxes. However, if the services provided are related to technology development and transfer, such entities may
be exempted from business and related taxes arising from such services subject to approval by the relevant tax authorities. We are subject to business and related
taxes on services provided in the PRC, and the applicable business tax rate is 5%. In our consolidated financial statements included elsewhere in this annual
report, business and related taxes are deducted from gross revenues to arrive at net revenues.
In November 2011, the Ministry of Finance released Circular Caishui 2011 No. 111 mandating Shanghai to be the first city to carry out a pilot program
of tax reform. Effective January 1, 2012, any entity that carries out selected modern services in Shanghai is required to pay value-added tax, or VAT instead of
business tax. These entities are permitted to offset input VAT incurred with the output VAT. The pilot program has been expanded to other regions, including
Beijing from September 1, 2012 and Nanjing from October 1, 2012. Beijing Tuniu, Nanjing Tuniu and Tuniu (Nanjing) Information Technology Co., Ltd. have
been subject to VAT at a rate of 6% and have since stopped paying the 5% business tax from the respective effective dates of the tax reform. This change did
not have a significant financial statement impact on our consolidated results of operations, and we do not expect it to have any significant impact in the future.
70
On March 23, 2016, the PRC Ministry of Finance and the State Administration of Taxation jointly issued the Circular on the Nationwide
Implementation of Pilot Program for the Collection of Value Added-Tax Instead of Business Tax, or Circular 36, pursuant to which the VAT reforms will be
implemented comprehensively across the country and extended to the construction, real estate, financial and consumer services industries. Circular 36 will
become effective on May 1, 2016. As a result, majority of our business will be subject to VAT at a rate of 6%, which is higher than the business tax rate
previously applied to us. We would be permitted to offset input VAT by providing valid VAT invoices received from vendors against our VAT liability.
Alternatively, the taxable income of tourism business could be calculated on net basis by deducting relevant expenses (including expenses for accommodation,
catering, transportation, visa, ticket and tourism fee paid to other entities/ individuals) if valid invoices could be obtained. As the interpretation and
implementation of Circular 36 are still evolving, there remain substantial uncertainties as to its potential impact on our business and results of operations.
Results of Operations
The following table sets forth a summary of our consolidated results of operations in absolute amounts and as percentages of our net revenues for the
periods indicated. The period-to-period comparisons of results of operations should not be relied upon as indicative of future performance.
Revenues:
Organized tours
Self-guided tours
Others
Total revenues
Less: Business and related taxes
Net revenues
Cost of revenues
Gross profit
Operating expenses:
Research and product development
Sales and marketing
General and administrative
Other operating income
Loss from operations
Other income/(expenses):
Interest income
Foreign exchange gains/(losses)/, net
Other loss, net
Loss before income tax expense
Income tax benefit
Net loss
2013
2014
RMB
%
RMB
%
RMB
For the Year Ended December 31,
2015
%
(in thousands, except percentages)
US$
1,892,826
48,901
20,744
1,962,471
(12,784)
1,949,687
(1,829,665)
120,022
(38,994)
(110,071)
(69,679)
1,689
(97,033)
16,163
1,286
(48)
(79,632)
—
(79,632)
97.1%
2.5
1.1
100.7
(0.7)
100.0
(93.8)
6.2
(2.0)
(5.6)
(3.6)
0.1
(5.0)
0.8
0.1
(0.0)
(4.1)
—
3,432,825
93,126
28,756
3,554,707
(19,768)
3,534,939
(3,308,801)
226,138
(104,881)
(434,191)
(166,988)
6,902
(473,020)
31,284
(5,334)
(788)
(447,858)
—
97.1%
2.6
0.8
100.6
(0.6)
100.0
(93.6)
6.4
(3.0)
(12.3)
(4.7)
0.2
(13.4)
0.9
(0.2)
(0.0)
(12.7)
—
7,358,879
194,162
127,745
7,680,786
(35,526)
7,645,260
(7,274,675)
1,136,015
29,973
19,720
1,185,708
(5,484)
1,180,224
(1,123,016)
370,585
57,208
(298,199)
(1,154,155)
(385,442)
12,175
(46,034)
(178,171)
(59,502)
1,879
(1,455,036)
(224,620)
76,516
(83,118)
(1,336)
(1,462,974)
589
11,812
(12,831)
(205)
(225,844)
91
96.3%
2.5
1.7
100.5
(0.5)
100.0
(95.2)
4.8
(3.9)
(15.1)
(5.0)
0.1
(19.1)
1.0
(1.1)
(0.0)
(19.2)
0.0
(4.1)%
(447,858)
(12.7)%
(1,462,385)
(225,753)
(19.2)%
71
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenues. Total revenues increased by 116.1% from RMB3,554.7 million in 2014 to RMB7,680.8 million (US$1,185.7 million) in 2015. This increase
was primarily due to an increase in our revenues from both organized tours and self-guided tours.
(cid:120)
(cid:120)
Revenues from organized tours. Revenues from organized tours, substantially all of which are recognized on a gross basis, increased by 114.4%
from RMB3,432.8 million in 2014 to RMB7,358.9 million (US$1,136.0 million) in 2015, primarily due to the growth in the number of trips of our
organized tours. This was a result of the rapid growth in demand for travel to certain international destinations, such as Europe, Southeast Asia,
Japan, and North America, and for domestic tours. During the same period, the number of trips of our organized tours (excluding local tours)
increased by 129.4% from 711,847 to 1,632,955 and the number of trips of our local tours increased by 58.4% from 1,074,335 to 1,701,821.
Revenues from self-guided tours. Revenues from self-guided tours, which are recognized on a net basis, increased by 108.5% from RMB93.1
million in 2014 to RMB194.2 million (US$30.0 million) in 2015. The increase in revenues from self-guided tours generally reflected the growth in
travel to domestic destinations, certain islands and Japan. The number of trips for our self-guided tours increased by 181.6% from 395,652 in 2014
to 1,114,277 in 2015.
(cid:120) Other revenues. Other revenues increased by 344.2% from RMB28.8 million in the 2014 to RMB127.7 million (US$19.7 million) in 2015,
primarily due to a rise in service fees received from insurance companies, revenues from tourist attraction tickets and other travel-related products,
which are recognized on a net basis.
Net Revenues. Net revenues increased by 116.3% from RMB3,534.9 million in 2014 to RMB7,645.3 million (US$1,180.2 million) in 2015, as a result
of our increased total revenues, partially offset by the resulting increase in business and related taxes over the same periods.
Cost of Revenues. Cost of revenues increased by 119.9% from RMB3,308.8 million in 2014 to RMB7,274.7 million (US$1,123.0 million) in 2015,
primarily due to the increase in the cost to suppliers of our organized tours. Cost to suppliers of our organized tours increased mainly as a result of the increase
in the sales of our organized tours (excluding local tours) from 711,847 trips in 2014 to 1,632,955 trips in 2015 and the sales of our local tours from 1,074,335
trips in 2014 to 1,701,821 trips in 2015. As a percentage of our net revenues, our cost of revenues was 93.6% in 2014 compared to 95.2% in 2015.
Operating Expenses. Operating expenses increased by 161.1% from RMB699.2 million in 2014 to RMB1,825.6 million (US281.8 million) in 2015,
due to increases in sales and marketing expenses, research and product development expenses and general and administrative expenses, partially offset by the
increase in our other operating income.
(cid:120)
(cid:120)
Research and product development. Research and product development expenses increased by 184.3% from RMB104.9 million in 2014 to
RMB298.2 million (US$46.0 million) in 2015, primarily due to investments for the implementation of additional product categories and initiatives,
the increase in direct procurement related personnel at regional service centers, improvement of online technology, and the rise in technology and
product development personnel related expenses.
Sales and marketing. Sales and marketing expenses increased by 165.8% from RMB434.2 million in 2014 to RMB1,154.2 million (US$178.2
million) in 2015. The increase was primarily attributable to branding and advertising campaigns, advertisements for our mobile business
development, and amortization of acquired intangible assets from our investment in resources on JD.com, Inc. in 2015.
(cid:120) General and administrative. General and administrative expenses increased by 130.8% from RMB167.0 million in 2014 to RMB385.4 million
(US$59.5 million) in 2015, primarily due to an increase in the headcount of our administrative personnel as a result of our business expansion,
such as regional service center expansion and product category expansion, and an increase in the professional service fees associated with being a
public company.
72
(cid:120) Other operating income. Other operating income increased from RMB6.9 million in 2014 to RMB12.2 million (US$1.9 million) in 2015.
Net Loss. As a result of the foregoing, net loss increased from RMB447.9 million in 2014 to RMB1,462.4 million (US$225.8 million) in 2015.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenues. Total revenues increased by 81.1% from RMB1,962.5 million in 2013 to RMB3,554.7 million in 2014. This increase was primarily due to
an increase in our revenues from both organized tours and self-guided tours.
(cid:120)
(cid:120)
Revenues from organized tours. Revenues from organized tours, substantially all of which are recognized on a gross basis, increased by 81.4%
from RMB1,892.8 million in 2013 to RMB3,432.8 million in 2014, primarily due to the growth in the number of trips of our organized tours. This
was a result of the rapid growth in demand for travel to certain international destinations, such as Europe, North America, South Korea and Japan,
and for domestic tours. During the same period, the number of trips of our organized tours (excluding local tours) increased by 93.9% from
367,104 to 711,847 and the number of trips of our local tours increased by 56.4% from 687,121 to 1,074,335.
Revenues from self-guided tours. Revenues from self-guided tours, which are recognized on a net basis, increased by 90.4% from RMB48.9
million in 2013 to RMB93.1 million in 2014. The increase in revenues from self-guided tours generally reflected an increase in the number of trips
for self-guided tours due to the growth in domestic travel, demand for cruise line products and travel to certain popular international destinations
such as Maldives. The number of trips for our self-guided tours increased by 78.7% from 221,412 in 2013 to 395,652 in 2014.
(cid:120) Other revenues. Other revenues increased by 38.6% from RMB20.7 million in the 2013 to RMB28.8 million in 2014, primarily due to the increase
in service fees we received from insurance companies that sell travel insurance products through our online platform, commissions from sales of
tickets for tourist attractions and the advertising fees we received from tourism boards and bureaus.
Net Revenues. Net revenues increased by 81.3% from RMB1,949.7 million in 2013 to RMB3,534.9 million in 2014, as a result of our increased total
revenues, partially offset by the resulting increase in business and related taxes over the same periods.
Cost of Revenues. Cost of revenues increased by 80.8% from RMB1,829.7 million in 2013 to RMB3,308.8 million in 2014, primarily due to the
increase in the cost to suppliers of our organized tours. Cost to suppliers of our organized tours increased mainly as a result of the increase in the sales of our
organized tours (excluding local tours) from 367,104 trips in 2013 to 711,847 trips in 2014 and the sales of our local tours from 687,121 trips in 2013 to
1,074,335 trips in 2014. As a percentage of our net revenues, our cost of revenues was 93.8% in 2013 compared to 93.6% in 2014.
Operating Expenses. Operating expenses increased by 222.1% from RMB217.1 million in 2013 to RMB699.2 million in 2014, due to increases in
sales and marketing expenses, research and product development expenses and general and administrative expenses, partially offset by the increase in our other
operating income.
(cid:120)
Research and product development. Research and product development expenses increased by 169.0% from RMB39.0 million in 2013 to
RMB104.9 million in 2014, primarily attributable to investments in new product offerings and mobile related initiatives, and the rise in technology
expenses and personnel expenses for product development.
73
(cid:120)
Sales and marketing. Sales and marketing expenses increased by 294.5% from RMB110.1 million in 2013 to RMB434.2 million in 2014. The
increase was primarily attributable to an increase in marketing and promotional expenses, primarily brand-promotion campaigns and
advertisements.
(cid:120) General and administrative. General and administrative expenses increased by 139.7% from RMB69.7 million in 2013 to RMB167.0 million in
2014, primarily attributable to the increases in the headcount of, and higher average compensation paid to, our general and administrative
personnel as a result of our business expansion and an increase in the professional service fees associated with being a public company.
(cid:120) Other operating income. Other operating income increased from RMB1.7 million in 2013 to RMB6.9 million in 2014.
Net Loss. As a result of the foregoing, net loss increased from RMB79.6 million in 2013 to RMB447.9 million in 2014.
Inflation
Since our inception, inflation in China has not had a material adverse impact on our results of operations. According to the National Bureau of
Statistics of China, the year-over-year percent changes in the consumer price index for December 2013, 2014 and 2015 were increases of 2.5%, 1.5% and 1.6%,
respectively. Although we have not been materially affected by inflation in the past, we may be materially affected if China experiences higher rates of inflation
in the future. For example, certain operating costs and expenses, such as employee compensation and office operating expenses may increase as a result of
higher inflation. Additionally, because a substantial portion of our assets consist of cash and cash equivalents and short-term investments, high inflation could
significantly reduce the value and purchasing power of these assets. We are not able to hedge our exposure to higher inflation in China.
Foreign Currency
The average exchange rate between U.S. dollar and Renminbi has declined from RMB8.2264 per U.S. dollar in July 2005 to RMB6.4778 per U.S.
dollar as of December 31, 2015. As of December 31, 2015, we recorded RMB188.1 million (US$29.0 million) of net foreign currency translation gain in
accumulated other comprehensive income as a component of shareholders’ equity. We have not hedged exposures to exchange fluctuations using any hedging
instruments. See also “Item 3.D. Key Information—Risk Factors—Fluctuations in exchange rates could have a material adverse effect on our results of
operations and the value of your investment” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Risk.”
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP. In doing so, we have to make estimates and assumptions that affect
our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there are
material differences between these estimates and actual results, our financial condition or operating results and margins would be affected. We base our
estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing
basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.
Business combination
U.S. GAAP requires that all business combinations not involving entities or businesses under common control be accounted for under the purchase
method. We have adopted ASC 805 “Business Combinations”, and the cost of an acquisition is measured as the aggregate of the fair values at the date of
exchange of the assets given, liabilities incurred and equity instruments issued. The transaction costs directly attributable to the acquisition are expensed as
incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date,
irrespective of the extent of any noncontrolling interests. The excess of the (i) the total of cost of acquisition, fair value of the noncontrolling interests and
acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as
goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated
statements of operations and comprehensive income.
74
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation
methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, the number of years on
which to base the cash flow projections, as well as the assumptions and estimates used to forecast the future cash inflows and outflows. Management determines
discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the
expected life of products and forecasted life cycle and forecasted cash flows over that period. Although management believes that the assumptions applied in the
determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference
could be material.
A noncontrolling interest is recognized to reflect the portion of a subsidiary’s equity which is not attributable, directly or indirectly, to the Company.
Consolidated net income on the consolidated statements of operations and comprehensive income includes the net income (loss) attributable to noncontrolling
interests when applicable. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in our
consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in the consolidated
statements of cash flows when applicable.
Intangible assets
Intangible assets purchased are recognized and measured at cost upon acquisition and intangible assets arising from acquisitions of subsidiaries are
recognized and measured at fair value upon acquisition. Our intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging
from 3 to 20 years. The estimated life of intangible assets subject to amortization is reassessed if circumstances occur that indicate the life has changed.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. No impairment of intangible assets was recognized for the years ended December 31, 2013, 2014 and 2015.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable assets and liabilities acquired in business combinations.
Goodwill is not amortized, but tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.
We adopted Accounting Standards Update (“ASU”) 2011-08, Intangibles—Goodwill and Other (Topic 350). This accounting standard gives us an
option to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as
a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, goodwill is then tested following a two-step process. The first step compares the fair value of each reporting unit to its
carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the
second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to
the carrying amount of a reporting unit’s goodwill. The fair value of each reporting unit is determined by us using the expected present value of future cash
flows. The key assumptions used in the calculation include the long-term growth rates of revenue and gross margin, working-capital requirements and discount
rates. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination, with the allocation of the assessed fair
value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to
the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does
not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the
implied fair value of goodwill. Our management performs its annual goodwill impairment test on October 1.
75
No impairment loss was recognized for the year ended December 31, 2015.
Revenue Recognition
We generate revenues primarily from selling packaged tours and travel-related services. Our main product and service offerings include (i) organized
tours, (ii) self-guided tours and (iii) other travel-related services. Organized tours offer pre-arranged itineraries, transportation, accommodations, entertainment,
meals and tour guide services and customers pay one lump-sum fee in exchange for such a package. Self-guided tours consist of a combination of flights and
hotel bookings or cruise trips, which are often offered to customers at a more favorable price as compared to customers purchasing these travel-related products
and services on a stand-alone basis. Other travel-related services primarily include sales of tourist attraction tickets, visa processing services and advertising
services that we provide to domestic and foreign tourism boards and bureaus.
Revenues are recognized in accordance with ASC 605, “Revenue Recognition,” when the following criteria are met: persuasive evidence of an
arrangement exists, the sales price is fixed or determinable, delivery has occurred or service has been provided and collectability is reasonably assured.
Organized tours
Substantially all of our revenues from organized tours are recognized on gross basis, which represent amounts charged to and received from customers,
as we are the primary obligor in the arrangement and bear the risks and rewards, including the customers’ acceptance of products and services delivered. While
we do not generally assume the inventory risk of purchasing travel services before customers place an order, we assess the facts and circumstances and conclude
that we are the principal in organized tour arrangements. Factors that support our conclusion mainly include the following:
(cid:120) We are the primary obligor in the arrangement as we are responsible for the ultimate customer acceptance for all products and services rendered.
Such commitment is also made in the contracts we enter into with our customers. We are the party retained by and paid by our customers. In
situations of customer disputes, where the customer files a complaint or demands a refund, we assume risks and responsibilities for the delivery of
organized tours and we, rather than the travel suppliers, are responsible for (and solely authorized to grant) refunding the customers their
payments.
(cid:120) We independently determine the prices charged to customers for organized tours, as well as the prices paid to travel suppliers and subcontractors.
(cid:120) We conduct a rigorous process in qualifying our travel suppliers and selecting travel products and services at our discretion before selling these
products to our customers, and participate in the design of organized tours.
Revenues from organized tours are recognized when customers return from the tour as delivery is only considered completed upon conclusion of the
entire organized tour.
Self-guided tours
Revenues from self-guided tours are recognized on a net basis, representing the difference between the amount the customer pays us, and the amount
we pay our travel suppliers. We generally do not assume inventory risk and have limited involvement in determining the product or service specifications in the
self-guided tour arrangements. Customers purchase self-guided tours based on the desired products specified, and we provide limited additional services to
customers. Suppliers are responsible for all aspects of providing the air transportation and hotel accommodation. Therefore, we are an agent for the travel
suppliers in the self-guided tour transactions and revenues from self-guided tours are reported on net basis. Revenues from self-guided tours are recognized
when the tours end, as commissions are not earned until this time according to the contractual arrangements entered into with travel suppliers.
76
Other revenues
Our other revenues primarily comprise revenues generated from (i) service fees received from insurance companies, (ii) other travel-related services,
such as sales of tourist attraction tickets and visa processing services, which are recognized on a net basis, (iii) fees for advertising services that we provide
primarily to domestic and foreign tourism boards and bureaus, (iv) commission fees for hotel reservation and air-ticketing, and (v) service fees for financial
services. Revenue is recognized when the services are rendered or when the tickets are issued.
We do not recognize revenue if customer refunds are warranted due to customer satisfaction issues or other reasons, which is generally known at the
end of each tour when revenues are recognized. In the event of tour cancellation by customers, the liability associated with prepayments received from
customers remains on our consolidated balance sheets until refunds are issued.
We commenced our financial services in 2015. Certain domestic financial assets exchanges, or the Exchanges, and trust companies offered the yield
enhancement products through our online platform and we charged these companies for the commission fees which were recorded as other revenue upon the
delivery of service. For the year ended December 31, 2015, the commission revenue was immaterial. In addition, we purchased the yield enhancement products
with maturities ranging from three months to two years from the Exchanges and trust companies and split all of the products into new yield enhancement
products with lower yield rate and shorter maturities within one year, which were offered to the individual investors through our online platform. The interest
revenue was recorded as other revenue and the relevant interest cost was recorded as cost of revenue.
Customer incentives
We have a customer loyalty program that offers customers coupons, travel vouchers, membership points or cash rewards. We account for these
customer incentives in accordance with ASC 605-50, “Customer Payments and Incentives.” For coupons and travel vouchers offered where prior purchase is
not required, we account for them as a reduction of revenues when revenues are recognized. We also assess coupons and vouchers offered to customers as part
of a current purchase that give customers a right but not an obligation to make future purchases, and concluded that the discounts offered are insignificant; as
such, no deferral of revenues are considered necessary.
For membership points earned by customers which provide travel awards upon point redemption, we use the incremental cost method to estimate our
future obligation to our customers, and record the incremental costs as sales and marketing expenses in the consolidated statements of comprehensive loss.
Unredeemed membership points are recorded in other current liabilities in the consolidated balance sheets. Cash rewards earned by customers are recorded as a
reduction to revenues, with corresponding unclaimed amount recorded in other current liabilities. We estimate liabilities under the customer loyalty program
based on accumulated membership points and cash rewards, and the estimate of probability of redemption in accordance with the historical redemption pattern.
The actual expenditure may differ from the estimated liability recorded. Prior to April 2015, we recorded estimated liabilities for all points earned by customers
as we did not have sufficient historical information to determine point forfeitures or breakage. We, with accumulated knowledge on membership points and cash
rewards redemption and expiration, began to apply historical redemption rates in estimating the costs of points earned from May 2015 onwards.
Research and Product Development
Research and product development expenses include salaries and other compensation-related expenses for our research and product development
personnel, as well as office rental, depreciation and other related expenses for our research and product development function. We recognize software
development costs in accordance with ASC 350-40 “Software—internal use software.” We expense all costs that are incurred in connection with the planning
and implementation phases of development, and costs that are associated with repair or maintenance of the existing websites or software for internal use. Certain
costs associated with developing internal use software are capitalized when such costs are incurred within the application development stage of software
development.
77
Income Taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not
assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided using
the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory
rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base
of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the
statement of comprehensive loss in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more
likely than not that some portion of, or all of the deferred tax assets will not be realized.
The guidance prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. Guidance also provides for derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. We recognize interest and penalties,
if any, under accrued expenses and other current liabilities on our balance sheet and under other expenses in our statement of comprehensive loss. As of
December 31, 2014 and 2015, we did not have any significant unrecognized uncertain tax positions or any interest or penalties associated with tax positions.
In order to assess uncertain tax positions, we apply a more likely than not threshold and a two-step approach for the tax position measurement and
financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if
any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon settlement.
Share-based Compensation
We account for share options granted to employees in accordance with ASC 718, “Stock Compensation.” The 2014 Share Incentive Plan, or the 2014
Plan, allows the plan administrator to grant options, restricted shares and restricted share units. The 2008 Plan allows the plan administrator to grant options and
restricted shares to our employees, directors, and consultants. The plan administrator under both plans is our board of directors or a committee appointed and
determined by the board. The board may also authorize one or more of our officers to grant awards under the plan. In accordance with the guidance, we
determine whether a stock-based award should be classified and accounted for as a liability award or equity award. Under the 2008 Plan and the 2014 Plan, we
only granted options to employees and directors, and such stock-based compensation is considered to be equity classified awards, and is recognized in the
financial statements based on their grant date fair values which are calculated using the binomial option pricing model. Share-based compensation expense is
recorded net of an estimated forfeiture rate at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.
Share-based compensation expense is recorded net of estimated forfeitures such that expenses are recorded only for those share-based awards that are expected
to ultimately vest.
Under the 2008 Plan and the 2014 Plan, options granted to employees vest upon satisfaction of a service condition, which is generally satisfied over
four years. Additionally, the 2008 Plan includes an exercisability clause where employees can only exercise vested options upon the occurrence of the following
events: (i) after our ordinary shares become listed securities, (ii) in connection with or after a triggering event (defined as a sale, transfer, or disposition of all or
substantially all of our assets, or a merger, consolidation, or other business combination transaction), or (iii) if the optionee obtains all necessary governmental
approvals and consents required. Options for which the service condition has been satisfied are forfeited should employment terminate three months prior to the
occurrence of an exercisable event, which substantially creates a performance condition. Therefore, since the adoption of the 2008 Plan through the date of the
completion of our initial public offering, we did not recognize any stock-based compensation expense for options granted, because an exercisable event as
described above did not occur. The satisfaction of the performance condition became probable upon completion of our initial public offering, and we recorded a
significant cumulative expense for share-based awards granted for which the service condition has been satisfied as of that date. Accordingly, we recognized a
significant share-based compensation expense of RMB39.2 million in 2014. In 2015, we recognized a share-based compensation expense of RMB65.1 million
(US$10.1 million). The estimates we used to determine the fair value of these options in computing our share-based compensation expense are determined on
the respective grant dates, and will not change when the underlying shares begin trading because our options are equity classified awards.
78
The following table sets forth the options granted under the 2008 Plan and the 2014 Plan in 2013, 2014 and 2015:
January 7, 2013
March 23, 2013
April 18, 2013
June 3, 2013
June 28, 2013
July 1, 2013
August 1, 2013
August 15, 2013
October 30, 2013(1)
October 30, 2013(1)
November 30, 2013(1)
November 30, 2013(1)
April 1, 2014(1)(3)
April 1, 2014(1)(3)
June 13, 2014
August 15, 2014(1)
August 15, 2014(1)
December 8, 2014(1)(4)
December 8, 2014(1)(4)
March 6. 2015(1)(4)
March 6. 2015(1)(4)
August 20, 2015(1) (4)
August 20, 2015(1) (4)
November 25, 2015 (4)
Number of
Options
Granted
2,177,133
5,000
45,000
20,000
20,000
20,000
3,809,985
378,192
500,000
190,000
10,000
270,000
150,000
426,000
2,700,000
800,000
1,575,000
60,000
766,000
2,428,200
2,027,800
7,743,000
1,350,000
820,000
Exercise Price
Fair Value
of Option
as of the
Grant Date
Fair Value of
the Underlying
Ordinary
Shares as of the
Grant Date
Intrinsic Value
as of the Grant
Date
US$
RMB(2)
US$
RMB(2)
US$
RMB(2)
US$
RMB(2)
Type of Valuation
0.90
1.14
1.14
1.14
1.14
1.14
0.0001
1.79
1.14
1.14
2.00
2.00
5.00
5.00
3.00
3.00
3.00
3.59
3.59
4.21
4.21
5.02
5.02
5.17
5.45
6.90
6.90
6.90
6.90
6.90
0.001
10.84
6.90
6.90
12.11
12.11
31.02
31.02
18.61
18.61
18.61
22.27
22.27
27.27
27.27
32.54
32.54
33.47
0.44
0.44
0.44
0.44
0.44
0.44
1.20
0.44
1.07
0.98
0.93
0.79
1.23
0.93
3.73
4.89
4.60
2.04
1.58
2.39
2.14
2.46
2.25
2.74
2.66
2.66
2.66
2.66
2.66
2.66
7.26
2.66
6.48
5.93
5.63
4.78
7.64
5.78
23.14
30.34
28.54
12.66
9.80
15.48
13.86
15.94
14.58
17.75
0.91
0.91
0.91
0.91
0.91
0.91
1.20
1.20
1.82
1.82
1.98
1.98
3.33
3.33
5.61
6.98
6.98
3.59
3.59
4.21
4.21
4.54
4.54
5.26
5.51
5.51
5.51
5.51
5.51
5.51
7.26
7.26
11.02
11.02
11.99
11.99
20.66
20.66
34.79
43.31
43.31
22.27
22.27
27.27
27.27
29.43
29.43
34.07
0.01
N/A
N/A
N/A
N/A
N/A
1.20
N/A
0.68
0.68
N/A
N/A
N/A
N/A
2.61
3.98
3.98
—
—
—
—
N/A
N/A
0.09
0.06
N/A
N/A
N/A
N/A
N/A
7.26
N/A
4.12
4.12
N/A
N/A
N/A
N/A
16.19
24.69
24.69
—
—
—
—
N/A
N/A
0.58
Retrospective
Retrospective
Retrospective
Retrospective
Retrospective
Retrospective
Retrospective
Retrospective
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
(1) Options granted to officers and non-officer employees result in different fair value on the same grant date.
(2) The translations from U.S. dollars to Renminbi were made at a rate of RMB6.0537 to US$1.00, the exchange rate in effect as of December 31, 2013 for
option granted before December 31, 2013, a rate of RMB6.2046 to US$1.00, the exchange rate in effect as of December 31, 2014 for the options granted
before December 31, 2014, and a rate of RMB6.4778 to US$1.00, the exchange rate in effect as of December 31, 2015 for the options granted after January
1, 2015, solely for the convenience of the readers.
79
(3) We modified the exercise price from $5.00 to $3.00 on May 15, 2014.
(4) We modified these exercise prices to US$3.09 on March 4, 2016.
Significant Factors, Assumptions, and Methodologies Used in Determining Fair Value of Options
We estimated the fair value of share options using the binomial option-pricing model with the assistance from an independent valuation firm before the
completion of our initial public offering on May 9, 2014. As part of our valuation process for share-based awards granted in 2012, 2013 and April 2014, we
have also taken into consideration the transaction value of independent third parties’ private equity investments in us that are closest to the respective valuation
dates. Our management is ultimately responsible for all assumptions and valuation methodologies used in such determination. The fair value of each option
grant is estimated on the date of grant with the following assumptions:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Expected volatility. We estimated expected volatility based on the annualized standard deviation of the daily return embedded in historical share
prices of comparable companies with a time horizon close to the expected expiry of the term.
Risk-free interest rate (per annum). We estimated risk-free interest rate based on the yield to maturity of US Treasury Bonds with a maturity
similar to the expected expiry of the term.
Exercise multiple. The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise price at the time the option is
exercised, based on a consideration of empirical studies on the actual exercise behavior of employees.
Expected dividend yield. We have never declared or paid any cash dividends on our capital stock, and we do not anticipate any dividend payments
on our ordinary shares in the foreseeable future.
Expected term (in years). Expected term is the contract life of the option.
Expected forfeiture rate (post-vesting). Estimated based on historical employee turnover rate after each option grant.
Changes in the estimates used to determine the fair value of awards
After the completion of our initial public offering, in addition to the significant estimates and assumptions disclosed above, we take the following
factors into consideration, which affect the estimates we use to determine the fair value of awards on their respective grant dates:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Expected volatility. We determine if there is sufficient history for us to calculate volatility using trading prices of our own ADSs. Additionally, we
may update the list of comparable companies from time to time.
Risk-free interest rate (per annum). We update this estimate each time a new stock award is granted.
Exercise multiple. The exercise multiple is estimated based on a consideration of empirical studies on the actual exercise behavior of employees of
comparable companies as we currently do not have a sufficiently long history of employee exercise patterns. Based on our employees’ exercise
behavior and pattern, we continue to update this estimate when stock awards are granted.
Expected dividend yield. This estimate remained unchanged since our initial public offering and is unlikely to change in the foreseeable future, as
we do not anticipate any dividend payments on our ordinary shares in the foreseeable future.
Expected term (in years). This estimate did not change upon completion of our initial public offering.
80
(cid:120)
(cid:120)
Expected forfeiture rate (post-vesting). We update this estimate each time a new stock award is granted based on the turnover rate of our
employees.
Fair value of our ordinary shares. The fair value of our ordinary shares on the grant date is determined based on the trading price of our ADSs on
such date, as opposed to applying the income approach valuation method.
Significant Factors, Assumptions, and Methodologies Used in Determining Fair Value of Ordinary Shares before the completion of our initial public offering on
May 9, 2014
As part of our valuation of share-based awards granted before the completion of our initial public offering, determining the fair value of our ordinary
shares required us to make complex and subjective judgments, assumptions and estimates, which involved inherent uncertainty. Had our management used
different assumptions and estimates, the resulting fair value of our ordinary shares and the resulting share-based compensation expenses could have been
different.
In determining the grant date fair value of our ordinary shares for purposes of recording share-based compensation in connection with employee stock
options for share-based awards granted before the completion of our initial public offering, we, with the assistance of independent appraisers, performed
retrospective valuations instead of contemporaneous valuations because, at the time of the valuation dates, our financial and limited human resources were
principally focused on business development efforts. This approach is consistent with the guidance prescribed by the AICPA Audit and Accounting Practice
Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. Specifically, the “Level B” recommendation in
paragraph 16 of the Practice Aid sets forth the preferred types of valuation that should be used.
For all share-based awards granted before the completion of our initial public offering, we, with the assistance of an independent valuation firm,
evaluated the use of three generally accepted valuation approaches: market, cost and income approaches to estimate our enterprise value. We and our appraisers
considered the market and cost approaches as inappropriate for valuing our ordinary shares because no exactly comparable market transaction could be found
for the market valuation approach and the cost approach does not directly incorporate information about the economic benefits contributed by our business
operations. Consequently, we and our appraisers relied solely on the income approach in determining the fair value of our ordinary shares. This method
eliminates the discrepancy in the time value of money by using a discount rate to reflect all business risks including intrinsic and extrinsic uncertainties in
relation to our company.
The income approach involves applying discounted cash flow analysis based on our projected cash flow using management’s best estimate as of the
valuation dates. Estimating future cash flow requires us to analyze projected revenue growth, gross margins, operating expense levels, effective tax rates, capital
expenditures, working capital requirements, and discount rates. Our projected revenues were based on expected annual growth rates derived from a combination
of our historical experience and the general trend in online leisure travel market. The revenue and cost assumptions we used are consistent with our long-term
business plan and market conditions in the online leisure travel market. We also have to make complex and subjective judgments regarding our unique business
risks, our limited operating history, and future prospects at the time of grant. Other assumptions we used in deriving the fair value of our equity include:
(cid:120)
(cid:120)
no material changes will occur in the applicable future periods in the existing political, legal, fiscal or economic conditions in China;
no material changes will occur in the current taxation law in China and the applicable tax rates will remain consistent;
(cid:120) we have the ability to retain competent management and key personnel to support our ongoing operations; and
(cid:120)
industry trends and market conditions for the online leisure travel market will not deviate significantly from current forecasts.
81
The option-pricing method was used to allocate equity value of our company to preferred and ordinary shares, taking into account the guidance
prescribed by the Practice Aid. This method involves making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or
an initial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans of our board and management.
The other major assumptions used in calculating the fair value of ordinary shares include:
(cid:120) Weighted average cost of capital, or WACC. Our cash flows were discounted to present value using discount rates that reflect the risks the
management perceived as being associated with achieving the forecasts and are based on the estimate of our weighted average cost of capital, or
WACC, on the grant date. The WACCs were determined considering the risk-free rate, industry-average correlated relative volatility coefficient,
or beta, equity risk premium, country risk premium, size of our company, scale of our business and our ability in achieving forecast projections.
WACCs of 25%, 23%, 22% and 22%, were used for dates as of January 7, 2013, August 1, 2013, October 30, 2013 and November 30, 2013,
respectively.
(cid:120)
Comparable companies. In deriving the WACCs, which are used as the discount rates under the income approach, six to eight publicly traded
companies in the U.S. (varied by valuation time points), two publicly traded companies in Australia, and one publicly traded company in China
online travel industry were selected for reference as our guideline companies.
(cid:120) Discount for lack of marketability, or DLOM. At the time of above grants, we were a closely-held company and there was no public market for our
equity securities. To determine the discount for lack of marketability, we and the independent appraisers used the Finnerty’s average-strike put
option model. Pursuant to that model, we used the cost of a put option, which can be used to hedge the price change before a privately held share
can be sold, as the basis to determine the discount for lack of marketability. A put option was used because it incorporates certain company-
specific factors, including timing of the expected initial public offering and the volatility of the share price of the guideline companies engaged in
the same industry. Based on the analysis, DLOM of 16%, 13%, 11% and 11% were used for the valuation of our ordinary shares as of January 7,
2013, August 1, 2013, October 30, 2013 and November 30, 2013, respectively.
Significant Factors Contributing to the Difference in Fair Value Determined
The determined fair value of our ordinary shares increased from US$0.91 (RMB5.51) per share as of December 16, 2012 to US$1.20 (RMB7.26) per
share as of August 1, 2013. We believe the increase in the fair value of our ordinary shares was primarily attributable to the following factors:
(cid:120)
(cid:120)
continued adoption and increased penetration of online leisure travel and the consistent strong growth seen in the overall industry;
improvement of our financial and operating performance in 2013 which was primarily attributable to increased economies of scale, greater
bargaining power with travel suppliers, and hence improved gross margin in 2013; and
(cid:120) management’s adjustment of our financial forecasts to reflect the anticipated higher revenue growth rate and long-term profitability in the future
due to the abovementioned developments.
The determined fair value of our ordinary shares increased from US$1.20 (RMB7.26) per share as of August 1, 2013 to US$1.82 (RMB11.02) per
share as of October 30, 2013 and further to US$1.98 (RMB11.99) per share as of November 30, 2013. We believe the increase in the fair value of our ordinary
shares was primarily attributable to the following factors:
82
(cid:120)
(cid:120)
the improvement of our financial and operating performance in 2013, which was primarily attributable to increased economies of scale, including
greater pricing power with travel suppliers;
the issuance of Series D convertible preferred shares in August 2013, which provided us with additional capital for our business expansion;
(cid:120) management’s adjustment of our financial forecast to reflect the anticipated higher revenue growth rate and better financial performance in the
future due to the abovementioned developments; and
(cid:120)
the commencement of our initial public offering preparation process in November 2013 and the completion of our initial public offering in 2014,
resulting in a decrease in the expected time period leading to a liquidity event. As we progressed towards our initial public offering, the lead time
to an expected liquidity event decreased, resulting in a decrease in the DLOM.
The determined fair value of our ordinary shares increased from US$1.98 (RMB11.99) per share as of November 30, 2013 to US$3.33 (RMB20.18)
per share, the mid-point of the estimated price range identified on the front cover of our preliminary prospectus for our initial public offering dated April 28,
2014. We believe the increase in the fair value of our ordinary shares was primarily attributable to the following factors:
(cid:120)
(cid:120)
the improvement of our financial and operating performance in the first quarter of 2014, which was primarily attributable to increased economies
of scale, including greater bargaining power with travel suppliers and increased customer base;
the short-term negative impact resulted from the promulgation of the Tourism Law in October 2013 has been fading, and we saw a steady and
sustainable increase in the number of customers purchasing the more expensive organized tours in the first quarter of 2014, which resulted in
higher average gross booking per trip; and we confidentially submitted the registration statement relating to our initial public offering to the SEC
in the first quarter of 2014 and completed our initial public offering in May 2014, resulting in a decrease in the expected time period leading to a
liquidity event. As we progressed towards our initial public offering, the lead time to an expected liquidity event decreased, resulting in a decrease
in the DLOM.
Recent Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern” (“ASU 2014-15”)., which provides
guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires
management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity
must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” ASU 2014-15 is effective for annual
periods ending after December 15, 2016, and interim periods thereafter; early adoption is permitted. We are in the process of evaluating the impact of adopting
this guidance.
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items” (“ASU 2015-01”) to eliminate from U.S.
GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under ASU 2015-
01, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its
income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary
item. ASU 2015-01 is effective for annual and interim periods beginning after December 15, 2015 and early adoption is permitted. This guidance will not have
material impact on our financial position, results of operations or cash flows.
83
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”).
ASU 2015-02 focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal
entities. ASU 2015-02 simplifies consolidation accounting by reducing the number of consolidation models from four to two. In addition, the new standard
simplifies the FASB Accounting Standards Codification and improves current guidance by: (i) placing more emphasis on risk of loss when determining a
controlling financial interest; (ii) reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE;
and (iii) changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. ASU
2015-02 is effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted, including adoption in an interim period.
We are in the process of evaluating the impact of adopting this guidance.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which amends the
existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic
606)” (“ASU 2015-14”): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. Therefore, the effective date of ASU No,
2014-09 for public business entities is for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting
period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that
reporting period. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. We are in the process of evaluating the
impact of adopting this guidance.
In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period
Adjustments” (“ASU 2015-16”). This ASU requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement
period in the reporting period in which the adjustment amounts are determined. Prior to the issuance of ASU 2015-16, entities were required to retrospectively
apply adjustments made to provisional amounts recognized in a business combination. ASU 2015-16 is effective for annual and interim periods beginning after
December 15, 2015, and early adoption is permitted. We have early adopted ASU 2015-16 in 2015.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”(“ASU 2015-
17”), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet.
ASU 2015-17 is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. We early adopted the new standard
on a retrospective basis as of December 31, 2015. The early adoption has no impact on the consolidated financial statements as there was a fully valuation
allowance on the deferred tax assets.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): “Recognition and Measurement of Financial
Assets and Financial Liabilities” (“ASU 2016-01”) which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments.
Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to the classification and measurement of investments
in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure
requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for annual and interim periods beginning after December 15,
2017. We are in the process of evaluating the impact of adopting this guidance.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”(“ASU 2016-02”), which requires lessees to recognize assets and
liabilities for all leases with lease terms of more than 12 months on the balance sheet. Under the new guidance, the recognition, measurement, and presentation
of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. ASU 2016-02 is effective for annual
and interim periods beginning after December 15, 2018 and early adoption is permitted on a modified retrospective basis. We are in the process of evaluating
the impact of adopting this guidance.
B.
Liquidity and Capital Resources
Our primary sources of liquidity have been proceeds from operating activities, private issuances of ordinary and preferred shares, and our initial public
offering.
84
Prior to the completion of our initial public offering in May 2014, we financed our operations primarily through cash generated from our operating
activities, private issuances and sales of preferred shares. In May 2014, we completed our initial public offering in which we issued and sold 8,580,000 ADSs
representing 25,740,000 Class A ordinary shares. Concurrently with our initial public offering, we issued and sold 5,000,000, 5,000,000 and 1,666,666 Class A
ordinary shares to each of DCM Hybrid RMB Fund, L.P., Ctrip Investment Holding Ltd. and Qihoo 360 Technology Co. Ltd., respectively. As a result of our
initial public offering and such concurrent private placements, we raised an aggregate of approximately US$106.3 million (RMB659.5 million) in proceeds, net
of underwriting commissions.
In December 2014 we entered into a share subscription agreement with Unicorn Riches Limited, JD.com E-commerce (Investment) Hong Kong
Corporation Limited, Ctrip Investment Holding Ltd. and the respective personal holding companies of Tuniu’s chief executive officer and chief operating
officer, pursuant to which we sold a total of 36,812,868 newly issued class A ordinary shares. As a result of this sale, we raised an aggregate of approximately
US$148.0 million (RMB918.3 million) in proceeds.
In May 2015, we entered into share subscription agreements with each of Fabulous Jade Global Limited, a subsidiary of JD.com, Inc., Unicorn Riches
Limited, a special purpose vehicle of Hony Capital, DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P., both
affiliates of DCM V, L.P., Ctrip Investment Holding Ltd., a subsidiary of Ctrip.com International, Ltd., Esta Investments Pte Ltd, an affiliate of Temasek
Holdings and Sequoia Capital 2010 CV Holdco, Ltd, an affiliate of Sequoia Capital, pursuant to which we sold a total of 93,750,000 newly issued Class A
ordinary shares. As a result of this sale, we raised an aggregate of approximately US$400.0 million in proceeds and JD.com, Inc.’s business resources.
In November 2015, we entered into a strategic partnership with HNA Tourism, as part of which an affiliate of HNA Tourism purchased 90,909,091
newly issued Class A ordinary shares from us for an aggregate of approximately US$500 million in January 2016.
Generally, our customers pay us upon contract confirmation, which is usually more than one month before the departure dates, and we pay our travel
suppliers at a later date, such as at the end of each month. The timing difference between when the cash is collected from our customers and when payments are
made to our travel suppliers increases our operating cash inflow and provides us with a source of liquidity to fund our settlement of outstanding accounts
payable to travel suppliers and our prepayment to our travel suppliers to secure organized tours and self-guided tours during peak seasons.
In connection with the increase in the sales of our travel products and services, advances from customer increased from RMB396.7 million as of
December 31, 2013 to RMB638.8 million as of December 31, 2014 and further to RMB1,223.3 million (US$188.8 million) as of December 31, 2015. In
addition, primarily due to timing differences between when cash is collected from our customers and when payments are made to our travel suppliers and the
expansion of our business, accounts payable increased from RMB289.0 million as of December 31, 2013 to RMB382.7 million as of December 31, 2014 and
further to RMB767.3 million (US$118.5 million) as of December 31, 2015. Furthermore, primarily due to the increase in our prepayment to travel suppliers as a
result of our business expansion, prepayments and other current assets increased from RMB286.6 million as of December 31, 2013 to RMB575.3 million as of
December 31, 2014 and further to RMB1,699.5 million (US$262.4 million) as of December 31, 2015. Moreover, due to investments in branding and advertising
campaigns, advertisements for our mobile business development, expansion of our VIP customer service center and amortization of acquired intangible asset in
2015, our sales and marketing expenses increased from RMB110.1 million in 2013, to RMB434.2 million in 2014 and further to RMB1,154.2 million
(US$178.2 million) in 2015. As a result, our net cash provided by operating activities was RMB116.7 million in 2013 and our net cash used in operating
activities was RMB271.1 million and RMB514.7 million (US$79.5 million) in 2014 and 2015, respectively.
Our principal uses of cash for the years ended December 31, 2013, 2014 and 2015 were for operating activities, primarily marketing and brand
promotion expenses, salaries and other compensation expenses as well as office rental and professional service fees. Our cash and cash equivalents consist of
cash on hand and cash in bank, including demand bank deposits. Our short-term investments comprise financial products issued by banks or other financial
institutions. As of December 31, 2013, 2014 and 2015, we had RMB755.7 million, RMB1,970.3 million and RMB3,666.6 million (US$566.0 million) in cash
and cash equivalents, restricted cash and short-term investments, respectively. We did not have any short-term or long-term bank borrowings outstanding as of
December 31, 2015.
85
In November 2014, we entered into framework cooperation agreements with four PRC-based banks under which the banks intend to make available
loan facilities up to an aggregate of RMB4.0 billion with terms ranging from two to five years to us or our suppliers. The actual borrowings under the
framework agreements are subject to execution of definitive agreements and final approvals by the respective banks. In the definitive financing agreements
executed among banks, our suppliers and us pursuant to the framework agreements, we did not provide guarantee for our suppliers’ borrowings nor bear the
banks’ credit risks.
We believe that our current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash
needs for at least the next 12 months. We may require additional cash due to unanticipated business conditions or other future developments. If our existing cash
is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or secure debt funding from financial institutions.
The following table sets forth a summary of our cash flows for the periods presented:
Net cash provided by/(used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at the end of the period
Operating Activities
2013
RMB
116,736
(304,218)
306,360
1,287
120,165
299,238
419,403
For the Year Ended December 31,
2014
RMB
2015
RMB
US$
(in thousands, except percentages)
(271,102)
(227,923)
1,540,397
(3,053)
1,038,319
419,403
1,457,722
(514,735)
(1,915,168)
3,005,838
67,560
643,495
1,457,722
2,101,217
(79,462)
(295,651)
464,022
10,429
99,338
225,034
324,372
Our net cash used in operating activities was RMB514.7 million (US$79.5 million) in 2015, primarily attributable to cash inflows from sales of our
travel products and services of RMB12,468.0 million (US$1,924.7 million) and cash inflows from other operating activities such as deposits, interest income
and government subsidies of RMB715.2 million (US$110.4 million), that were offset by cash outflows due to payments to our travel suppliers of RMB11,948.4
million (US$1,844.5 million), payments relating to other operating activities, which include payments for marketing and promotional activities, office rental and
utilities and professional services, of RMB1,022.4 million (US$157.8 million), payments to employees and for employees’ benefits of RMB691.0 million
(US$106.7 million) and payments of taxes and levies of RMB36.1 million (US$5.6 million).
Our net cash used in operating activities was RMB271.1 million in 2014, primarily attributable to cash inflows from sales of our travel products and
services of RMB5,289.1 million and cash inflows from interest income and government subsidies of RMB35.1 million, that were offset by cash outflows due to
payments to our travel suppliers of RMB4,796.3 million, payments relating to other operating activities, which include payments for marketing and promotional
activities, office rental and utilities and professional services, of RMB524.3 million, payments to employees and for employees’ benefits of RMB257.4 million
and payments of taxes and levies of RMB17.2 million.
Our net cash provided by operating activities was RMB116.7 million in 2013, primarily attributable to cash inflows from sales of our travel products
and services of RMB3,199.2 million and cash inflows from interest income and government subsidies of RMB13.0 million, partially offset by cash outflows due
to payments to our travel suppliers of RMB2,842.0 million , payments relating to other operating activities, which include payments for marketing and
promotional activities, office rental and utilities and professional services, of RMB130.6 million, payments to employees and for employees’ benefits of
RMB110.8 million and payments of taxes and levies of RMB12.1 million.
86
Investing Activities
Our net cash used in investing activities was RMB1,915.2 million (US$295.7 million) in 2015, primarily attributable to the purchase of short-term
investments of RMB1,139.7 million (US$175.9 million), the purchase of financial products of RMB718.6 million (US$110.9 million), the business acquisition
of RMB60.1 million (US$9.3 million), the purchase of property and equipment and intangible assets of RMB155.5 million (US$24.0 million) and the increase
in our balance of restricted cash of RMB294.4 million (US$45.4 million), partially offset by the proceeds from the maturity of short-term investments of
RMB442.1 million (US$68.3 million) and the proceeds from maturity of financial products of RMB10.8 million (US$1.7 million).
Our net cash used in investing activities was RMB227.9 million in 2014, primarily attributable to the purchase of short-term investments of RMB547.6
million, the purchase of property and equipment and intangible assets of RMB50.6 million and the increase in our balance of restricted cash of RMB34.8
million, offset by the proceeds from the disposal of short-term investments of RMB405.0 million.
Our net cash used in investing activities was RMB304.2 million in 2013, primarily attributable to the purchase of short-term investments of RMB451.8
million and the purchase of property and equipment and intangible assets of RMB4.8 million, offset by the proceeds from the disposal of short-term investments
of RMB154.8 million.
Financing Activities
Our net cash provided by financing activities in 2015 was RMB3,005.8 million (US$464.0 million) net proceeds from our private placement (net of
issuance cost of RMB2,430.2 million (US$375.2 million)), funds of RMB579.5million (US$89.4 million) collected from the purchases of financial products by
individual investors on our website, RMB12.6 million (US$1.9 million) proceeds from employees exercising stock options, partially offset by repayment of
short-term borrowing of RMB15.0 million (US$2.3 million) and the acquisition of the remaining non-controlling interest of a subsidiary of RMB1.5 million
(US$0.2 million).
Our net cash provided by financing activities in 2014 was RMB1,540.4 million, attributable to the net proceeds of our initial public offering and the
concurrent private placements as well as the private placement in December 2014.
Our net cash provided by financing activities in 2013 was RMB306.4 million, attributable to the net proceeds from issuance of Series D preferred
shares.
Capital Expenditures
Cash outflow in connection with capital expenditures amounted to RMB4.8 million, RMB50.6 million and RMB155.5 million (US$24.0 million) in
2013, 2014 and 2015, respectively. Our capital expenditures were primarily used to purchase equipment and intangible assets for our business. As of
December 31, 2015, capital commitments relating to leasehold improvement and installation of equipment were approximately RMB0.2 million (US$29,625).
Holding Company Structure
We are a holding company with no material operations of our own. We conduct our operations primarily through our wholly owned subsidiaries and
consolidated affiliated entities in China. As a result, our ability to pay dividends to our shareholders depends upon dividends paid by our PRC subsidiaries. If
our PRC subsidiaries or any newly formed PRC subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their
ability to pay dividends to us. In addition, our PRC subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and our consolidated affiliated entities in China is required
to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered
capital. In addition, each of our subsidiaries and consolidated affiliated entities in China may allocate a portion of its after-tax profits based on PRC accounting
standards to staff welfare and bonus funds at its discretion. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. As our
PRC subsidiaries and consolidated affiliated entities have incurred losses, they have not started to contribute to the staff welfare and bonus funds. Our PRC
subsidiaries have never paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory
reserve funds.
87
C.
Research and Development
We have built our technology infrastructure with high levels of performance, reliability, scalability and security. We rely on internally developed
proprietary technologies and licensed technologies to manage and improve our website, mobile platform and management systems. We have a team of over
1,000 engineers dedicated to research and development in the areas of website operations, mobile platform, search engine, data analytics and supply chain
management system.
Research and product development expenses primarily comprise salaries and other compensation expenses for our research and product development
personnel as well as office rental, depreciation and other expenses related to our research and product development function. Research and product development
expenses also include expenses that are incurred in connection with the planning and implementation phases of development and costs that are associated with
the maintenance of our online platform or software for internal use. In 2013, 2014 and 2015 our research and product development expenses accounted for
2.0%, 3.0% and 3.9% of our net revenues, respectively. During the same period, our research and product development expenses increased in order to support
our business expansion, primarily attributable to investments for the implementation of additional product categories such as Internet finance, accommodation
reservation and transportation ticketing, the increase in direct procurement-related personnel at regional service centers, improvement of online technology, and
the rise in technology and product development personnel-related expenses. We expect research and product development expenses to increase in absolute
amounts as the results of our continual research and product development efforts and the increase in share-based compensation expenses.
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 year
ended December 31, 2015 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital
resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.
E.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered
into any off-balance sheet derivative instruments. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated
entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
F.
Contractual Obligations
The following table sets forth our contractual obligations by specified categories as of December 31, 2015.
Operating Lease Obligations(1)
Purchase Obligations(2)
Total
Total
Less Than
1 Year
Payment Due by Period
1-3 Years
(In RMB thousands)
3-5 Years
More Than
5 Years
215,032
192
215,224
53,393
192
53,585
80,029
—
80,029
53,102
—
53,102
28,508
—
28,508
(1) Operating lease obligations represent our obligations for the leased premises of our headquarters and regional service centers.
(2) Purchase obligations consist primarily of contractual commitments in connection with leasehold improvements and the installation of equipment for our
headquarters and regional service centers.
88
Other than the contractual obligations set forth above, we do not have any contractual obligations that are long-term debt obligations, capital (finance)
lease obligations, purchase obligations or other long-term liabilities reflected on our balance sheet.
Item 6.
Directors, Senior Management and Employees
A.
Directors and Senior Management
The following table sets forth information regarding our executive officers and directors as of the date of this annual report:
Directors and Executive Officers
Dunde Yu
Haifeng Yan
Tie Li
Jie Zhu
Haoyu Shen
Cindy Chen
Frank Lin
Steve Yue Ji
James Jianzhang Liang
Onward Choi
Jack Xu
Conor Chia-hung Yang
Zhengrong Tang
Enjie Wu
Age
35
34
39
35
45
40
51
43
46
45
48
53
46
44
Position/Title
Co-founder, chairman and chief executive officer
Co-founder, director, president and chief operating officer
Director
Director
Director
Director
Director
Director
Director
Director
Director
Chief financial officer
Chief technology officer
Vice president of human resources center
Mr. Dunde Yu is our co-founder and has served as chairman of our board of directors and chief executive officer since our inception. Prior to founding
our company, Mr. Yu was the chief technology officer of ci123.com in 2006, where he helped ci123.com become a leading Chinese childcare website. From
2004 to 2006, Mr. Yu served as the technical director of Bokee.com. Mr. Yu received a bachelor’s degree in mathematics from Southeast University in China in
2003.
Mr. Haifeng Yan is our co-founder, president and chief operation officer and has served as our director since our inception. Prior to founding our
company, Mr. Yan was one of the founding members and the chief operating officer of ci123.com, from 2005 to 2006, where he was responsible for daily
operations and helped ci123.com become a leading Chinese childcare website. Mr. Yan served as an analyst of iTech Holdings Limited in 2004.
Mr. Tie Li has served as our director since February 2016. Mr. Li currently serves as vice chairman and chief executive officer of HNA Tourism
Group. Mr. Li joined HNA Group in 2002 and has headed various business divisions of HNA Group since then, serving as financial director, president and vice
chairman of HNA Aviation Group and chief investment officer of HNA Tourism Group, before being promoted to vice chairman and chief executive officer in
November 2015. Mr. Li has extensive experience in the fields of investment, finance and legal matters in connection with the travel and tourism industry. Mr. Li
holds a bachelor’s degree from Anhui University.
Mr. Jie Zhu has served as our director since February 2016. Mr. Zhu currently serves as a member of the board of directors and chief innovation officer
of HNA Tourism Group. After joining HNA Group in 2011, Mr. Zhu headed the investment and securities business divisions of HNA Tourism Group and its
subsidiary Beijing Tourism Investment Fund. Mr. Zhu holds an MBA from Glendon-York University.
Mr. Haoyu Shen has served as our director since May 2015. Mr. Shen currently serves as the chief executive officer of JD Mall, the B2C business
group of JD.com, Inc. Prior to assuming his current role in April 2014, Mr. Shen served as the chief operating officer of JD.com, Inc. from August 2011 to April
2014, and was in charge of JD.com, Inc.’s entire supply chain management and customer service functions. Prior to joining JD.com, Inc., Mr. Shen worked at
Baidu, Inc., the leading Chinese language internet search provider, where he served as a senior vice president from January 2010 to July 2011 and the vice
president of business operations from July 2007 to July 2010. Mr. Shen holds a bachelor’s degree in international finance from Renmin University of China in
Beijing and an MBA degree from the University of Iowa. Mr. Shen is a CFA charter holder.
89
Ms. Cindy Chen has served as our director since May 2015. Ms. Chen is a managing director at Hony Capital specializing in the Internet, high-end
manufacturing and new energy sectors. Ms. Chen has a deep understanding of the commercial environment and enterprise management in China. Prior to
assuming her role at Hony Capital, Ms. Chen held key finance roles with the Lenovo Group. Ms. Chen holds a bachelor’s degree in economics from Beijing
Institute of Petrochemical Technology and an EMBA degree from China Europe International Business School.
Mr. Frank Lin has served as our director since December 2009. Mr. Lin is a general partner of DCM, a technology venture capital firm. Prior to joining
DCM in 2006, Mr. Lin was chief operating officer of Sina Corporation, a Nasdaq-listed company. Mr. Lin co-founded sina.com’s precursor company, SinaNet,
in 1995 and later guided the company through its listing on Nasdaq. Prior to founding SinaNet, Mr. Lin was a consultant at Ernst & Young Management
Consulting Group. Mr. Lin had also held various marketing, engineering and managerial positions at Octel Communication Inc. and NYNEX. Mr. Lin currently
serves on the board of directors of numerous companies invested by DCM, including Vipshop Holdings Limited, a NYSE-listed company, and 58.com Inc., a
NYSE-listed company. Mr. Lin received a bachelor’s degree in engineering from Dartmouth College and a master’s degree in business administration from
Stanford University.
Mr. Steve Yue Ji has served as our director since March 2011. Mr. Ji is a partner of Sequoia Capital China. Prior to joining Sequoia Capital in 2005,
Mr. Ji worked at Walden International, Vertex Management and CIV Venture Capital, where he contributed to investments in numerous wireless, Internet and
semiconductor companies in China. Prior to that, Mr. Ji worked for Seagate Technology China, a Nasdaq-listed company, among the first group of its
employees in 1995. Mr. Ji has been an independent director of Country Style Cooking Restaurant Chain Co., Ltd., a NYSE-listed company, since 2010. Mr. Ji
received a master’s degree in business administration from China Europe International Business School in 1999 and a bachelor’s degree in engineering from
Nanjing University of Aeronautics and Astronautics in Nanjing, China in 1995.
Mr. James Jianzhang Liang has served as our director since July 2014. Mr. Liang is the chairman and Chief Executive Officer of Ctrip.com
International, Ltd., a leading travel service provider for hotel accommodation reservation, transportation ticketing, packaged tours and corporate travel
management in China. Prior to co-founding Ctrip in 1999, Mr. Liang held a number of technical and managerial positions at Oracle Corporation from 1991 to
1999 in the U.S. and China, including head of the ERP Consulting Division of Oracle China from 1997 to 1999. Mr. Liang currently serves on the boards of
Home Inns, 51job.com and eHi Car Services Limited. Mr. Liang received a Ph.D. in Economics from Stanford University in 2011 and a Master’s in Computer
Science from the Georgia Institute of Technology.
Mr. Onward Choi has served as our independent director since May 2014. Mr. Choi has been the acting chief financial officer of NetEase Inc., or
NetEase, a Nasdaq-listed company, since July 2007. He previously served as NetEase’s financial controller from January 2005 to June 2007 and as its corporate
finance director from November 2003 to December 2004. Prior to joining NetEase, Mr. Choi worked in the Beijing office of Ernst & Young, the Hong Kong
Trade Development Council and the Hong Kong office of KPMG for over ten years. Mr. Choi currently serves as the chairman of the audit committee and an
independent non-executive director of Beijing Jingkelong Company Limited and China ITS (Holdings) Co., Ltd., both of which are listed on the Hong Kong
Stock Exchange. Mr. Choi is a member of the Institute of Chartered Accountants in England and Wales, a fellow member of the Association of Chartered
Certified Accountants, a fellow member of the CPA Australia, a fellow member of the Hong Kong Institute of Certified Public Accountants and a registered
practicing certified public accountant in Hong Kong. Mr. Choi received a bachelor’s degree in accountancy with honors from the Hong Kong Polytechnic
University.
Mr. Jack Xu has served as Tuniu’s independent director since May 2014. Mr. Xu is the managing partner at Seven Seas Venture Partners. Mr. Xu
served as President and Chief Technology Officer of Sina Corporation, a Nasdaq-listed company, from January 2013 to February 2015. Prior to joining Sina
Corporation, Mr. Xu worked at Cisco as the Corporate Vice President of the Communications and Collaboration business unit. Previously, Mr. Xu served as
Vice President of Engineering and Research at eBay from October 2002 to April 2008 and Chief Technology Officer at NetEase from May 2000 to July 2002.
He led Excite’s search engine development in 1996, while pursuing a Ph.D. at the University of California at Berkeley. Mr. Xu received a bachelor’s degree and
a master’s degree in information management from Sun Yat-Sen University in China.
90
Mr. Conor Chia-hung Yang has served as our chief financial officer since January 2013. Prior to joining us, Mr. Yang was the chief financial officer of
E-Commerce China Dangdang Inc., a NYSE-listed company, from March 2010 to July 2012 and the chief financial officer of AirMedia Group Inc., a Nasdaq-
listed company, from March 2007 to March 2010. Mr. Yang was the chief executive officer of RockMobile Corporation from 2004 to February 2007. From
1999 to 2004, Mr. Yang served as the chief financial officer of the Asia Pacific region for CellStar Asia Corporation. Mr. Yang was an executive director of
Goldman Sachs (Asia) L.L.C. from 1997 to 1999. Prior to that, Mr. Yang was a vice president of Lehman Brothers Asia Limited from 1994 to 1996 and an
associate at Morgan Stanley Asia Limited from 1992 to 1994. Mr. Yang currently serves as an independent director and chairman of the audit committee of
AirMedia Group Inc., and an independent director of Leyou Technologies Holdings Limited. Mr. Yang received a master’s degree of business administration
from University of California, Los Angeles in 1992.
Mr. Zhengrong Tang has served as our chief technology officer since August 2013. Prior to joining us, Mr. Tang was the chief technology officer of
China Gtel from 2012 to 2013, where he was responsible for the products, operations and technology of guahao.com. From 2004 to 2012, Mr. Tang served as a
senior director of Alibaba Group’s alibaba.com, taobao.com and alipay.com and the chief technology officer of Alibaba Japan, where he was responsible for the
architecture migration of taobao.com, the establishment of alipay.com, and the development of Alibaba’s international website. Between 2003 and 2004,
Mr. Tang was the chief research architect of CTB/McGraw-Hill. From 1995 to 2003, Mr. Tang served as an architect at Neoforma, senior engineer at
Comergent Technologies and technology manager at Perot Systems. Mr. Tang received a master’s degree in computer science from University of Pittsburgh in
1995, a bachelor’s degree in computer science from State University of New York at Albany in 1993.
Mr. Enjie Wu has served as our vice president of human resources center since January 2010. Prior to joining us, Mr. Wu was the human resources
general manager of Hisap Corporation from 2005 to 2010. From 2003 to 2005, Mr. Wu was the general manager of Jianghai Group. From 2001 to 2002,
Mr. Wu served as the director of human resources of Beijing Yenova Decoration Co., Ltd. From 1993 to 2001, he was the human resource officer of Zindart
Manufacturing Limited. Mr. Wu received a bachelor’s degree in economics and management from Sun Yat-Sen University in China in 1993.
B.
Compensation
For the fiscal year ended December 31, 2015, we paid an aggregate of approximately RMB5.9 million (US$0.9 million) in cash to our executive
officers and RMB0.7 million (US$0.1 million) to our non-executive directors and officers. For share incentive grants to our directors and executive officers and
the vesting conditions of such share incentive grants, see “—Share Incentive Plans.”
Share Incentive Plans
2008 Incentive Compensation Plan
We adopted an incentive compensation plan, or the 2008 Plan, in 2008. The purposes of the 2008 Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional incentive to employees and consultants, and to promote the success of our business by
offering these individuals an opportunity to acquire a proprietary interest in our company. In 2012, we increased the maximum aggregate number of shares
which may be issued under the 2008 Plan from 11,500,000 to 18,375,140. As of March 31, 2016, options to purchase 10,766,805 ordinary shares were
outstanding, and there were 399,152 ordinary shares available for future issuance upon the exercise of future grants under the 2008 Plan.
The following paragraphs summarize the terms of the 2008 Plan.
Types of Awards. The 2008 Plan permits the awards of options and restricted shares.
91
Plan Administration. Our board of directors or a committee appointed by our board will administer the 2008 Plan. The committee or the full board of
directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and
conditions of each award grant, among other things. Our board of directors may authorize one or more officers of us to grant awards under the 2008 Plan,
subject to parameters specified by the board of directors.
Award Agreement. Awards granted under the 2008 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each
award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award, among other things. Pursuant to the form award agreement under the 2008 Plan,
1/4 of the ordinary shares underlying the option shall vest on the first anniversary of the date of grant, and 1/48 of the remaining ordinary shares underlying the
option shall vest on a monthly basis in the following three years. However, the option may be exercised, to the extent vested, only (a) in connection with or after
certain triggering events if the option is assumed by a company whose shares are listed on a securities exchange, or (b) unless otherwise allowed by the plan
administrator in its sole discretion, if the option holder obtains all the necessary governmental approvals and consents required for the issuance of such shares.
Eligibility. We may grant awards to our employees and consultants of our company. However, we may grant options that are intended to qualify as
incentive options only to our employees.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion
of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum exercisable term is
the tenth anniversary after the date of a grant.
Transfer Restrictions. Options may not be transferred in any manner by the recipient other than by will or by the laws of descent or distribution, except
as otherwise provided by the plan administrator.
Termination of the 2008 Plan. Unless terminated earlier, the 2008 Plan will terminate automatically in 2018. Our board of directors has the authority
to amend or terminate the plan subject to shareholder approval if required by applicable law.
2014 Share Incentive Plan
We adopted the 2014 Share Incentive Plan, or the 2014 Plan, in 2014. The maximum aggregate number of shares which may be issued pursuant to all
awards under the 2014 Plan is initially 5,500,000 ordinary shares as of the date of its approval. The number of shares reserved for future issuances under the
2014 Plan will be increased automatically if and whenever the ordinary shares reserved under the 2014 Plan account for less than 1% of the total then-issued
and outstanding ordinary shares on an as-converted basis. The ordinary shares reserved under the 2014 Plan immediately after each such increase shall equal to
5% of the then-issued and outstanding ordinary shares on an as-converted basis. As of March 31, 2016, there were options to purchase 18,805,521 ordinary
shares and 113,772 restricted shares outstanding under the 2014 Plan.
The following paragraphs summarize the terms of the 2014 Plan.
Types of Awards. The 2014 Plan permits the awards of options, restricted shares and restricted share units.
Plan Administration. Our board of directors or a committee designated by our board administers the 2014 Plan. The committee or the full board of
directors, as applicable, determines the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and
conditions of each award grant.
Award Agreement. Awards granted under the 2014 Plan are evidenced by an award agreement that sets forth terms, conditions and limitations for each
award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates, and our authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
92
Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grant options that are intended to
qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.
Acceleration of Awards upon Change in Control. If a change in control of our company occurs, the plan administrator may, in its sole discretion,
provide for (i) all awards outstanding to terminate at a specific time in the future and give each participant the right to exercise the vested portion of such awards
during a specific period of time, or (ii) the purchase of any award for an amount of cash equal to the amount that could have been attained upon the exercise of
such award, or (iii) the replacement of such award with other rights or property selected by the plan administrator in its sole discretion, or (iv) payment of award
in cash based on the value of ordinary shares on the date of the change-in-control transaction plus reasonable interest.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The vested portion
of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the maximum exercisable term is
the tenth anniversary after the date of a grant.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and distribution, except
as otherwise provided by the plan administrator.
Termination of the 2014 Plan. Unless terminated earlier, the 2014 Plan will terminate automatically in 2024. Our board of directors has the authority
to amend or terminate the plan subject to shareholder approval or home country practice.
The following table summarizes, as of March 31, 2016, the outstanding options and restricted shares granted to our directors and executive officers
under the 2008 Plan and 2014 Plan.
93
Ordinary
Shares
Underlying
Options
Awarded/
Restricted
Shares
630,814
1,100,000
1,269,995
900,000
760,000
1,981,000
340,000
1,100,000
1,269,995
900,000
660,000
1,981,000
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*†
*†
20,168,859
Exercise Price
(US$/
Share)
(RMB/
Share)(2)
0.100
0.226
0.0001
3.000
3.090
3.090
0.100
0.226
0.0001
3.000
3.090
3.090
0.900
0.0001
3.000
3.090
3.090
1.135
3.090
3.090
0.226
1.135
1.790
3.000
3.090
3.090
N/A
N/A
—
0.65
1.463
0.0006
19.43
20.02
20.02
0.65
1.463
0.0006
19.43
20.02
20.02
5.83
0.0006
19.43
20.02
20.02
7.35
20.02
20.02
1.46
7.353
11.60
19.43
20.02
20.02
—
Name
Dunde Yu
Haifeng Yan
Conor Chia-hung Yang
Zhengrong Tang
Enjie Wu
Jack Xu
Onward Choi
Directors and officers as a group
Date of Grant
November 5, 2009
March 11, 2011
August 1, 2013
June 13, 2014
March 6, 2015
August 20, 2015
November 5, 2009
March 11, 2011
August 1, 2013
June 13,2014
March 6, 2015
August 20, 2015
January 7, 2013
August 1, 2013
June 13,2014
March 6, 2015
August 20, 2015
October 30, 2013
March 6, 2015
August 20, 2015
March 11, 2011
March 19, 2012
August 15, 2013
August 15, 2014
March 6, 2015
August 20, 2015
May 9, 2014
May 9, 2014
—
Vesting
Schedule
Date of Expiration
4 years(1) November 4, 2019
4 years(1)
March 10, 2017
4 years(1)
July 31, 2019
4 years(1)
June 12, 2024
4 years(1)
March 5, 2025
4 years(1)
August 19, 2025
4 years(1) November 4, 2019
4 years(1)
March 10, 2017
4 years(1)
July 31, 2019
4 years(1)
June 12, 2024
4 years(1)
March 5, 2025
4 years(1)
August 19, 2025
4 years(1)
January 6, 2019
4 years(1)
July 31, 2019
4 years(1)
June 12, 2024
4 years(1)
March 5, 2025
4 years(1)
August 19, 2025
4 years(1)
October 29, 2019
4 years(1)
March 5, 2025
4 years(1)
August 19, 2025
4 years(1)
March 10, 2017
4 years(1)
March 18, 2018
4 years(1)
August 14, 2019
4 years(1)
August 14, 2024
4 years(1)
March 5, 2025
4 years(1)
August 19, 2025
4 years(1)
May 8, 2024
4 years(1)
May 8, 2024
—
—
*
Shares underlying vested options less than 1% of our total outstanding shares.
† Denotes restricted share award; all other awards in this table are option awards.
(1) Pursuant to the relevant award agreement, 1/4 of the ordinary shares underlying the option or restricted shares shall vest on the first anniversary of the date
of grant, and 1/48 of the remaining ordinary shares underlying the option or restricted shares shall vest on a monthly basis in the following three years.
However, the option or restricted shares may be exercised, to the extent vested, only (a) in connection with or after certain triggering events if the option is
assumed by a company whose shares are listed on a securities exchange, or (b) unless otherwise allowed by the plan administrator in its sole discretion, if
the option holder or holder of restricted shares obtains all the necessary governmental approvals and consents required for the issuance of such shares.
(2) The prices in Renminbi were translated using the rate of US$1.00 = RMB6.4778, the exchange rate in effect as of December 31, 2015, solely for the
convenience of the readers.
C.
Board Practices
Board of Directors
Our board of directors currently consists of eleven directors. A director is not required to hold any shares in our company. A director may vote with
respect to any contract, proposed contract, or arrangement in which he or she is interested provided (a) such director has declared the nature of his or her
interest, whether material or not, at the earliest meeting of the board at which it is practicable to do so, either specifically or by way of a general notice, (b) such
director has not been disqualified by the chairman of the relevant board meeting, and (c) if such contract or arrangement is a transaction with a related party,
such transaction has been approved by the audit committee in accordance with the NASDAQ rules. The directors may exercise all the powers of the company to
borrow money, mortgage its business, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any
obligation of the company or of any third party.
Committees of the Board of Directors
We have three committees of the board of directors: the audit committee, the compensation committee and the nominating and corporate governance
committee under the board of directors. We have adopted a charter for each of the three committees. Each committee’s members and functions are described
below.
Audit Committee. Our audit committee consists of Mr. Onward Choi, Mr. Jack Xu and Ms. Cindy Chen and is chaired by Mr. Choi. Each of Mr. Choi,
Mr. Xu and Ms. Chen satisfies the “independence” requirements of Rule 5605(a)(2) of the NASDAQ Stock Market Rules and meet the independence standards
under Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Our board of directors has determined that each of Mr. Choi and Mr. Xu qualifies as
an “audit committee financial expert” within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933, as amended. The audit committee
oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for,
among other things:
(cid:120)
selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by
the independent registered public accounting firm;
94
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;
discussing the annual audited financial statements with management and the independent registered public accounting firm;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;
reviewing and reassessing annually the adequacy of our audit committee charter;
(cid:120) meeting separately and periodically with management and the independent registered public accounting firm; and
(cid:120) monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to
ensure proper compliance.
Compensation Committee. Our compensation committee consists of Mr. Onward Choi, Mr. Haoyu Shen and Mr. Jack Xu, and is chaired by Mr. Choi.
Each of Mr. Choi, Mr. Shen and Mr. Xu, satisfies the “independence” requirements of Rule 5605(a)(2) of the NASDAQ Stock Market Rules. The compensation
committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive
officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon. The compensation
committee is responsible for, among other things:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive
officers;
reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;
reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s
independence from management.
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Mr. Jack Xu, Mr. Onward Choi
and Mr. Frank Lin, and is chaired by Mr. Xu. Each of Mr. Xu, Mr. Choi and Mr. Lin satisfies the “independence” requirements of Rule 5605(a)(2) of the
NASDAQ Stock Market Rules. The nominating and corporate governance committee assists the board in selecting individuals qualified to become our directors
and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other
things:
(cid:120)
(cid:120)
(cid:120)
recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board;
reviewing annually with the board the current composition of the board with regards to characteristics such as independence, age, skills,
experience and availability of service to us;
selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as
well as of the nominating and corporate governance committee itself;
95
(cid:120)
(cid:120)
developing and reviewing the corporate governance principles adopted by the board and advising the board with respect to significant
developments in the law and practice of corporate governance and our compliance with such laws and practices; and
evaluating the performance and effectiveness of the board as a whole.
Terms of Directors and Executive Officers
All directors hold office until they are removed by ordinary resolution of the shareholders or become disqualified from being a director in accordance
with the terms of our articles of association. In addition, the service agreements between us, our subsidiaries, if applicable, and the directors do not provide
benefits upon termination of their service. Director nominations by the board of directors are subject to the approval of our corporate governance and
nominating committee. Our shareholders may remove any director by ordinary resolution and may in like manner appoint another person in his stead. A valid
ordinary resolution requires a majority of the votes cast at a shareholder meeting that is duly constituted and meets the quorum requirement. Officers are elected
by and serve at the discretion of the board of directors. For the periods of service of our directors as of December 31, 2015, see “—A. Directors and Senior
Management.”
Duties of Directors
Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a
duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In
fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder may have the right to
seek damages in our name if a duty owed by our directors is breached. You should refer to “Item 10.B. Additional Information—Memorandum and Articles of
Association—Differences in Corporate Law—Directors’ Fiduciary Duties.”
D.
Employees
We had a total of 1,415, 2,799, and 7,028 employees as of December 31, 2013, 2014 and 2015, respectively. The following table sets forth the numbers
of our employees, categorized by function, as of December 31, 2015:
Function
Management and administration
Tour advisor
Call center
Sales and marketing
Research and product development
Regional service centers
Tour guides
Total
Number of
Employees
1,023
1,426
376
581
2,297
1,305
20
7,028
We enter into standard employment agreements with all our employees. We also enter into confidentiality agreements with certain directors and
executive officers that impose confidentiality obligations until the relevant information becomes public or is no longer considered confidential by us. In addition
to salaries and benefits, we provide stock-based compensation and performance-based bonuses for our employees and commission-based compensation for our
sales personnel.
As required by regulations in China, we participate in various employee social security plans that are organized by municipal and provincial
governments, including pension insurance, medical insurance, unemployment insurance, maternity insurance, job-related injury insurance and a housing
provident fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages of the salaries, bonuses and
certain allowances of our employees.
96
Our success depends on our ability to attract, retain and motivate qualified personnel. We believe that we maintain a good working relationship with
our employees, and we have not experienced any significant labor disputes.
E.
Share Ownership
The following table sets forth information with respect to the beneficial ownership of our shares as of March 31, 2016 by:
(cid:120)
each of our current directors and executive officers; and
(cid:120)
each person known to us to own beneficially more than 5% of our shares.
See “—B. Compensation—Share Incentive Plans” for more details on options and restricted shares granted to our directors and executive officers.
The calculations in the table below are based on (i) 378,089,251 ordinary shares outstanding as of March 31, 2016, including 17,373,500 Class B
ordinary shares outstanding and 360,715,751 Class A ordinary shares outstanding (excluding 1,642,293 Class A ordinary shares, represented by 547,431
American depositary shares, issued and reserved for the future exercise of options or the vesting of other awards under the 2008 Plan and the 2014 Plan).
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by
a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the
exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the
percentage ownership of any other person.
Class A
Ordinary
Shares
Class B
Ordinary
Shares
Total
Ordinary
Shares
%†
Voting
Power††
Directors and Executive Officers:*
Dunde Yu(1)
Haifeng Yan(2)
Tie Li(3)
Jie Zhu(4)
Haoyu Shen(5)
Cindy Chen(6)
Frank Lin(7)
Steve Yue Ji(8)
James Jianzhang Liang(9)
Onward Choi(10)
Jack Xu(11)
Conor Chia-hung Yang
Zhengrong Tang
Enjie Wu
All directors and executive officers as a group
Principal Shareholders:
BHR Winwood Investment Management Limited(12)
Affiliates of JD.com, Inc.(13)
DCM V, L.P. and Affiliates(14)
Unicorn Riches Limited(15)
Dragon Rabbit Capital Limited(16)
Verne Capital Limited(17)
7,360,952
7,040,975
90,909,091
90,909,091
78,061,780
27,436,780
34,829,512
16,198,364
12,481,034
**
**
**
**
**
276,916,533
90,909,091
78,061,780
34,829,512
27,436,780
4,104,137
4,104,137
10,423,503
6,949,997
—
—
—
—
—
—
—
—
—
—
—
—
17,373,500
—
—
—
—
10,423,503
6,949,997
17,784,455
13,990,972
90,909,091
90,909,091
78,061,780
27,436,780
34,829,512
16,198,364
12,481,034
**
**
**
**
**
294,290,033
90,909,091
78,061,780
34,829,512
27,436,780
14,527,640
11,054,134
4.7
3.7
24.0
24.0
20.7
7.3
9.2
4.3
3.3
**
**
**
**
**
76.1
24.0
20.7
9.2
7.3
3.8
2.9
20.8
14.2
17.0
17.0
14.6
5.1
6.5
3.0
2.3
**
**
**
**
**
83.0
17.0
14.6
6.5
5.1
20.3
13.7
*
Except for Tie Li, Jie Zhu, Haoyu Shen, Cindy Chen, Frank Lin, Steve Yue Ji, James Jianzhang Liang, Onward Choi and Jack Xu, the business address of
our directors and executive officers is Tuniu Building, No. 699-32, Xuanwudadao, Xuanwu District, Nanjing, Jiangsu Province 210042, PRC.
** Shares underlying vested options of less than 1% of our total outstanding shares on an as-converted basis.
†
For each person and group included in this column, percentage ownership is calculated by dividing the number of ordinary shares beneficially owned by
such person or group by the sum of the total number of ordinary shares outstanding as of March 31, 2016, which is 378,089,251 ordinary shares
outstanding, including 17,373,500 Class B ordinary shares outstanding and 360,715,751 Class A ordinary shares (excluding 1,642,293 Class A ordinary
shares, represented by 547,431 American depositary shares, issued and reserved for the future exercise of options or the vesting of other awards under the
2008 Plan and the 2014 Plan), plus the number of ordinary shares such person or group has the right to acquire, including upon exercise of options and
vesting of restricted shares and restricted share units, within 60 days after March 31, 2016.
†† For each person and group included in this column, percentage ownership percentage of total voting power represents voting power based on both Class A
and Class B ordinary shares held by such person or group, and the ordinary shares such person or group has the right to acquire upon exercise of the stock
options or warrants within 60 days after March 31, 2016, with respect to all outstanding shares of our Class A and Class B ordinary shares as a single class.
Each holder of Class A ordinary shares is entitled to one vote per Class A ordinary share. Each holder of our Class B ordinary shares is entitled to ten votes
per Class B ordinary share. Our Class B ordinary shares are convertible at any time by the holder into Class A ordinary shares on a share-for-share basis.
(1) Represents (i) 3,256,815 Class A ordinary shares underlying the options or restricted shares that have become fully vested as of March 31, 2016 or will
become fully vested within 60 days after March 31, 2016, and (ii) 4,104,137 Class A ordinary shares and 10,423,503 Class B ordinary shares held by
Dragon Rabbit Capital Limited, a British Virgin Islands company. Dragon Rabbit Capital Limited is wholly owned by Longtu Holdings Limited, a British
Virgin Islands company which is wholly owned by a trust, of which Mr. Yu’s family is the beneficiary.
(2) Represents (i) 2,936,838 Class A ordinary shares underlying the options or restricted shares that have become fully vested as of March 31, 2016 or will
become fully vested within 60 days after March 31, 2016, and (ii) 4,104,137 Class A ordinary shares and 6,949,997 Class B ordinary shares held by Verne
Capital Limited, a British Virgin Islands company. Verne Capital Limited is wholly owned by Magic Worldwide Limited, a British Virgin Islands company
which is wholly owned by a trust, of which Mr. Yan’s family is the beneficiary.
97
(3) Represents 90,909,091 Class A ordinary shares held by BHR Winwood Investment Management Limited. The business address of Mr. Li is 20F, Tower A,
Hainan Airlines Plaza, B-2, East 3rd Ring North Road, Chaoyang District, Beijing, PRC.
(4) Represents 90,909,091 Class A ordinary shares held by BHR Winwood Investment Management Limited. The business address of Mr. Zhu is 20F, Tower
A, Hainan Airlines Plaza, B-2, East 3rd Ring North Road, Chaoyang District, Beijing, PRC.
(5) Represents (i) 65,625,000 Class A ordinary shares held by Fabulous Jade Global Limited and (ii) 12,436,780 Class A ordinary shares held by JD.com E-
Commerce (Investment) Hong Kong Corporation Limited. The business address of Mr. Shen is 15F, Building C, No. 18 Kechuang 11 Street, BDA, Beijing,
PRC
(6) Represents 27,436,780 Class A ordinary shares held by Unicorn Riches Limited. The business address of Ms. Chen is 6F, South Tower C, Raycom Info
Tech Park, No. 2 Kexueyuan Nanlu, Haidian District, Beijing, 100190, PRC.
(7) Represents (i) 22,881,096 Class A ordinary shares held by DCM V, L.P., (ii) 558,324 Class A ordinary shares held by DCM Affiliates Fund V, L.P., (iii)
7,640,092 Class A ordinary shares held by DCM Hybrid RMB Fund, L.P., (iv) 3,541,670 Class A ordinary shares held by DCM Ventures China Turbo
Fund, L.P., and (v) 208,330 Class A ordinary shares held by DCM Ventures China Turbo Affiliates Fund, L.P. The business address of Mr. Lin is Unit 1,
Level 10, Tower W2, Oriental Plaza, Dong Cheng District, Beijing, PRC.
(8) Represents 16,198,364 Class A ordinary shares held by Sequoia Capital 2010 CV Holdco, Ltd. The business address of Mr. Ji is 2805, Plaza 66 Tower 2,
1366 Nanjing West Road, Shanghai, PRC.
(9) Represents 12,481,034 Class A ordinary shares held by Ctrip Investment Holding Ltd. The business address of Mr. Liang is Building 16, Sky SOHO, No.
968 Jinzhong Road, Shanghai, PRC.
(10) The business address of Mr. Choi is Building No. 7, West Zone, Zhongguancun Software Park (Phase II), No. 10 Xibeiwang East Road, Haidian District,
Beijing 100193, PRC.
(11) The business address of Mr. Xu is 3000 Sand Hill Road, Building 4, Suite 100; Menlo Park, CA 94025.
(12) BHR Winwood Investment Management Limited is a company incorporated in Hong Kong and wholly owned by an affiliated fund of HNA Tourism. The
business address of BHR Winwood Investment Management Limited is Unit 3101, 31/F, tower 2, China Central Place, 79 Jianguo Road, Chaoyang
District, Beijing 100025, PRC.
(13) Represents (i) 65,625,000 Class A ordinary shares held by Fabulous Jade Global Limited, and (ii) 12,436,780 Class A ordinary shares held by JD.com E-
commerce (Investment) Hong Kong Corporation Limited. The business address of Fabulous Jade Global Limited is P.O. Box 957, Offshore Incorporations
Centre, Road Town, Tortola, British Virgin Islands. Fabulous Jade is a wholly-owned subsidiary of JD.com Investment Limited, which in turn is a wholly-
owned subsidiary of JD.com, Inc., a NASDAQ listed company. The business address of JD.com E-Commerce (Investment) Hong Kong Corporation
Limited is Suite 1203, 12th Floor, Ruttonjee House, 11 Duddell Street Central, Hong Kong. JD.com E-Commerce (Investment) Hong Kong Corporation
Limited is a wholly-owned subsidiary of JD.com E-Commerce (Technology) Hong Kong Corporation Limited, which in turn is a wholly-owned subsidiary
of JD.com, Inc. We refer to Fabulous Jade Global Limited and JD.com E-Commerce (Investment) Hong Kong Corporation Limited as “Affiliates of
JD.com, Inc.”
(14) Represents (i) 22,881,096 Class A ordinary shares held by DCM V, L.P., (ii) 558,324 Class A ordinary shares held by DCM Affiliates Fund V, L.P.,
(iii) 7,640,092 Class A ordinary shares held by DCM Hybrid RMB Fund, L.P., (iv) 3,541,670 Class A ordinary shares held by DCM Ventures China Turbo
Fund, L.P., and (v) 208,330 Class A ordinary shares held by DCM Ventures China Turbo Affiliates Fund, L.P. The general partner of DCM V, L.P. and
DCM Affiliates Fund V, L.P. is DCM Investment Management V, L.P., whose general partner is DCM International V, Ltd. DCM International V, Ltd.,
through DCM Investment Management V, L.P., has the sole voting and investment power over these shares, and such voting and investment power is
exercised by K. David Chao, Thomas Blaisdell and Peter W. Moran, the directors of DCM International V, Ltd. The general partner of DCM Hybrid RMB
Fund, L.P. is DCM Hybrid RMB Fund Investment Management, L.P., whose general partner is DCM Hybrid RMB Fund International Ltd. DCM Hybrid
RMB Fund International Ltd., through DCM Hybrid RMB Fund Investment Management, L.P., has the sole voting and investment power over these shares,
and such voting and investment power is exercised by K. David Chao, Thomas Blaisdell, Jason Krikorian, and Peter W. Moran, the directors of DCM
Hybrid RMB Fund International Ltd. The general partner of DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P.
is DCM Turbo Fund Investment Management, L.P., whose general partner is DCM Turbo Fund International, Ltd. DCM Turbo Fund International, Ltd.,
through DCM Turbo Fund Investment Management, L.P., has the sole voting and investment power over these shares, and such voting and investment
power is exercised by K. David Chao and Jason Krikorian, the directors of DCM Turbo Fund International, Ltd. The business address of DCM V, L.P.,
DCM Affiliates Fund V, L.P., DCM Hybrid RMB Fund, L.P., DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund,
L.P. is 2420 Sand Hill Road, Suite 200, Menlo Park, CA 94025, the United States.
(15) The business address of Unicorn Riches Limited is c/o Hony Capital Limited, Suite 2701, One Exchange Square, Central, Hong Kong. Unicorn Riches
Limited is a wholly-owned subsidiary of Hony Capital Fund V, L.P. Hony Capital Fund V. L.P.’s general partner is Hony Capital Fund V GP, L.P. Hony
Capital Fund V GP, L.P.’s general partner is Hony Capital Fund V GP Limited. John Huan Zhao and Legend Holdings Corporation, have 80% and 20%,
respectively, equity ownership of Hony Capital Fund V GP Limited.
(16) Dragon Rabbit Capital Limited is wholly owned by Longtu Holdings Limited is a British Virgin Islands company which is wholly owned by a trust, of
which Mr. Yu’s family is the beneficiary. The business address of Dragon Rabbit Capital Limited is Quastisky Building, P.O. Box 4389, Road Town,
Tortola, British Virgin Islands.
(17) Verne Capital Limited is a British Virgin Islands company. Verne Capital Limited is wholly owned by Magic Worldwide Limited, a British Virgin Islands
company which is wholly owned by a trust, of which Mr. Yan’s family is the beneficiary. The business address of Verne Capital Limited is Quastisky
Building, P.O. Box 4389, Road Town, Tortola, British Virgin Islands.
98
To our knowledge, as of March 31, 2016, 119,780,334 of our outstanding ordinary shares are held by five record holders in the United States. The total
number of shares held by the five record holders in the United States represents 31.7% of our total outstanding shares. This includes 92,590,914 ordinary shares
(excluding 1,656,003 Class A ordinary shares, represented by 552,001 American depositary shares, issued and reserved for the future exercise of options or the
vesting of other awards under the 2008 Plan and the 2014 Plan) held of record by JPMorgan Chase Bank, N.A., the depositary of our ADS program. The
number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United
States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
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
Contractual Arrangements
For a description of the contractual arrangements among Beijing Tuniu, Nanjing Tuniu and the shareholders of Nanjing Tuniu, see “Item 4.C.
Information on the Company—Organizational Structure.” See also “Item 3.D. Key Information—Risk Factors—Risks Related to Our Corporate Structure.”
Private Placements, Repurchase and Redesignation
See “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
Relationship with Ctrip
Ctrip Investment Holding Ltd. (“Ctrip”) has one director in common with our company. Ctrip purchased 5,000,000 Class A ordinary shares in a private
placement concurrent with our initial public offering, an additional 3,731,034 Class A ordinary shares for a total of US$15,000,000 through a private placement
transaction in December 2014 as well as an additional 3,750,000 Class A ordinary shares for a total of US$20,000,000 through a private placement transaction
in May 2015. We conduct transactions in the ordinary course of business with Ctrip on the terms of arm-length transactions. We sell our packaged-tours through
Ctrip’s online platform and the commission fees for Ctrip’s service were immaterial. In addition, Ctrip sells the hotel rooms and air tickets products through our
online platform and commission fees we earned were RMB0.7 million and RMB3.5 million (US$0.5 million) for the years ended December 31, 2014 and 2015,
respectively.
Relationship with JD.com, Inc.
On May 8, 2015, we issued 65,625,000 Class A ordinary shares to Fabulous Jade Global Limited, a subsidiary of JD.com, Inc., for a consideration of
RMB1,528.2 million (US$250 million) in cash and RMB660.2 million in the business resource contributed by JD.com, Inc., which included the exclusive right
to operate the leisure travel channel for both JD.com, Inc.’s website and mobile application, preferred partnership with JD.com, Inc. for hotel and air ticket
reservation service, its internet traffic support and marketing support for the leisure travel channel for a period of five years starting from August 2015.
Relationship with HNA Tourism Group
In November 2015, we entered into a strategic partnership with HNA Tourism through a share subscription agreement, pursuant to which (i) HNA
Tourism invested US$500 million in our company in January 2016 through the acquisition of 90,909,091 newly issued Class A ordinary shares of our company
by one of its affiliates, and (ii) HNA Tourism agreed to provide us with access to its premium airlines and hotels resources at a preferential rate, in compliance
with applicable fair competition market rules, and we undertook to acquire no less than US$100 million products and services sourced from HNA Tourism over
the next two years. The transaction contemplated by the share subscription agreement was completed on in January 2016. In connection with the strategic
partnership with HNA Tourism, we entered into an investor rights agreement with HNA Tourism in November 2015, which was subsequently amended in
December 2015 and February 2016, to govern certain rights and obligations of us and HNA Tourism.
99
Employment Agreements and Indemnification Agreements
See “Item 6.B. Directors, Senior Management and Employees—Compensation.”
Share Incentive Plans
See “Item 6.B. Directors, Senior Management and Employees—Compensation.”
C.
Interests of Experts and Counsel
Not applicable.
Item 8.
Financial Information
A.
Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements.”
Legal Proceedings
From time to time, we may be involved in legal proceedings in the ordinary course of our business. We are not currently a party to any material legal or
administrative proceedings.
Dividend Policy
Our board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Even if our board of directors decides to pay
dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition,
contractual restrictions and other factors that our board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same
extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12.D.
Description of Securities Other than Equity Securities—American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S.
dollars.
We have not previously declared or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares or ADSs.
We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements,
including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Item 4.B.
Information on the Company—Business Overview—PRC Regulation—Regulations on Dividend Distribution” and “Item 12.D. Description of Securities Other
than Equity Securities— American Depositary Shares.” Cash dividends on our common shares, if any, will be paid in U.S. dollars.
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.
100
Item 9.
The Offer and Listing
A.
Offering and Listing Details
Our ADSs, each representing three of our Class A ordinary shares, have been listed on NASDAQ since May 9, 2014. Our ADSs trade under the
symbol “TOUR.” The following table provides the high and low closing trading prices for our ADSs on NASDAQ since the date of our initial public offering:
Annual Highs and Lows
2014 (since May 9, 2014)
2015
Quarterly Highs and Lows
Second Quarter 2014 (since May 9, 2014)
Third Quarter 2014
Fourth Quarter 2014
First Quarter 2015
Second Quarter 2015
Third Quarter 2015
Fourth Quarter 2015
First Quarter 2016
Monthly Highs and Lows
October 2015
November 2015
December 2015
January 2016
February 2016
March 2016
April 2016 (through April 22, 2016)
B.
Plan of Distribution
Not applicable.
C.
Markets
Trading Price Per ADS in US$
High
Low
24.00
20.74
18.67
24.00
19.79
15.58
20.74
17.62
16.91
16.00
15.43
15.78
16.91
16.00
12.64
11.13
12.10
10.07
11.40
10.07
16.52
10.77
12.04
12.59
11.40
11.75
8.99
11.75
14.05
15.40
12.28
10.56
8.99
10.40
Our ADSs have been listed on NASDAQ since May 9, 2014 under the symbol “TOUR.”
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
Item 10.
Additional Information
A.
Share Capital
Not applicable.
B.
Memorandum and Articles of Association
We are a Cayman Islands company and our affairs are governed by our memorandum and articles of association and the Companies Law (2013
Revision) of the Cayman Islands, which we refer to as the Companies Law below. The following are summaries of material provisions of our fifth amended and
restated memorandum and articles of association that became effective immediately prior to the completion of our initial public offering in May 2014, insofar as
they relate to the material terms of our ordinary shares.
101
Registered Office and Objects
Our registered office in the Cayman Islands is located at International Corporation Services Ltd., P.O. Box 472, 2nd Floor, Harbour Place, 103 South
Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands, or at such other place as our board of directors may from time to time decide. The
objects for which our company is established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies
Law, as amended from time to time, or any other law of the Cayman Islands.
Board of Directors
See “Item 6.C. Directors, Senior Management and Employees—Board Practices.”
Ordinary Shares
General. Our authorized share capital is US$100,000 divided into 1,000,000,000 shares, with a par value of US$0.0001 each, which will be divided
into 780,000,000 Class A ordinary shares with a par value of US$0.0001 each, 120,000,000 Class B ordinary shares with a par value of US$0.0001 each, and
100,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as our board of directors may determine. Holders of Class A
ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. All of our outstanding ordinary shares are fully paid
and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands
may freely hold and transfer their ordinary shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our current articles of
association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board
of directors determine is no longer needed. Dividends may also be declared and paid out of share premium account or any other fund or account which can be
authorized for this purpose in accordance with the Companies Law. Holders of Class A ordinary shares and Class B ordinary shares are entitled to the same
amount of dividends, if declared.
Voting Rights. In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary
share is entitled to ten votes, voting together as one class. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be
demanded by the chairman of such meeting or any shareholder present in person or by proxy. Each holder of our ordinary shares are entitled to vote such
ordinary shares as are registered in his or her name on our register of members.
A quorum required for a meeting of shareholders consists of at least two shareholders who hold at least one third in nominal value of our share capital
in issue at the meeting present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Shareholders’
meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary general meeting. Extraordinary general
meetings may be called by a majority of our board of directors or our chairman or upon a requisition of shareholders holding at the date of deposit of the
requisition not less than one-third of the aggregate voting power of our company. Advance notice of at least 14 calendar days is required for the convening of
our annual general meeting and other general meetings. All holders of ordinary shares are permitted to attend general and extraordinary meetings.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the
ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding
ordinary shares at a meeting. A special resolution is required for important matters such as a change of name or making changes to our current memorandum
and articles of association.
102
Conversion. Each Class B ordinary share can be convertible into one Class A ordinary share at any time by the holder. Class A ordinary shares are not
convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity which is not
an affiliate of such holder, such Class B ordinary shares will be automatically and immediately converted into the equivalent number of Class A ordinary shares.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by
an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we
have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as
our board of directors may reasonably require to show the right of the transferor to make the transfer;
the instrument of transfer is in respect of only one class of ordinary shares;
the instrument of transfer is properly stamped, if required;
in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four;
the shares transferred are free of any lien in favor of the Company; and
a fee of such maximum sum as the NASDAQ Global Market may determine to be payable or such lesser sum as our directors may from time to
time require is paid to us in respect thereof.
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of
the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the NASDAQ Global Market, be suspended and the register closed at
such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be
suspended nor the register closed for more than 30 calendar days in a year.
Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets available
for distribution among the holders of ordinary shares shall be distributed among the holders of the ordinary shares on a pro rata basis. If our assets available for
distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately. Any
distribution of assets or capital to a holder of a Class A ordinary share and a holder of a Class B ordinary share will be the same in any liquidation event.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls upon shareholders for any
amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 calendar days prior to the specified time of payment. The ordinary
shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption of Ordinary Shares. The Companies Law and our current articles of association permit us to purchase our own shares. In accordance with
our current articles of association and provided the necessary shareholders or board approval have been obtained, we may issue shares on terms that are subject
to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner, including out of capital, as may be determined by
our board of directors.
103
Variations of Rights of Shares. All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be
materially adversely varied with the written consent of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution
passed at a general meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, unless
otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be materially adversely varied by the creation or issue of further
shares ranking pari passu with such existing class of shares, or by the creation or issue of shares with preferred or other rights including, without limitation, the
creation of shares with enhanced or weighted voting rights.
Inspection of Books and Records. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our
list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See “—H. Documents on
Display.”
Issuance of Additional Shares. Our current memorandum of association authorizes our board of directors to issue additional ordinary shares from time
to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our current memorandum of association also authorizes our board of directors to establish from time to time one or more series of preferred shares and
to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the designation of the series;
the number of shares of the series;
the dividend rights, dividend rates, conversion rights, voting rights; and
the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares
may dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions. Some provisions of our current memorandum and articles of association may discourage, delay or prevent a change of
control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred
shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action
by our shareholders.
Exempted Company. We are an exempted company with limited liability under the Companies Law. The Companies Law distinguishes between
ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the
Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary
company except that an exempted company:
(cid:120)
(cid:120)
(cid:120)
does not have to file an annual return of its shareholders with the Registrar of Companies;
is not required to open its register of members for inspection;
does not have to hold an annual general meeting;
(cid:120) may issue negotiable or bearer shares or shares with no par value;
(cid:120) may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);
(cid:120) may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
104
(cid:120) may register as a limited duration company; and
(cid:120) may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.
Register of Members. Under the Companies Law, we must keep a register of members and there should be entered therein:
(cid:120)
(cid:120)
(cid:120)
the names and addresses of our members, a statement of the shares held by each member, and of the amount paid or agreed to be considered as
paid, on the shares of each member;
the date on which the name of any person was entered on the register as a member; and
the date on which any person ceased to be a member.
Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register of members
will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members is deemed as a matter of
Cayman Islands law to have legal title to the shares as set against its name in the register of members.
If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering
on the register the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company or our
company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse such application
or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Differences in Corporate Law
The Companies Law is modeled after that of English law but does not follow many recent English law statutory enactments. In addition, the
Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences
between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State of Delaware.
Mergers and Similar Arrangements. A merger of two or more constituent companies under Cayman Islands law requires a plan of merger or
consolidation to be approved by the directors of each constituent company and authorization by (a) a special resolution of the shareholders and (b) such other
authorization, if any, as may be specified in such constituent company’s articles of association.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders
of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees
otherwise. For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are owned by the parent
company.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in
the Cayman Islands.
Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares upon
dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the
grounds that the merger or consolidation is void or unlawful.
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In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved
by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths
in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings,
convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands.
While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve
the arrangement if it determines that:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the statutory provisions as to the required majority vote have been met;
the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the
minority to promote interests adverse to those of the class;
the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.
When a takeover offer is made and accepted by holders of 90.0% of the shares within four months, the offeror may, within a two-month period
commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An
objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there
is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would
otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined
value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority
shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the
foregoing principle, including when:
(cid:120)
(cid:120)
(cid:120)
a company acts or proposes to act illegally or ultra vires;
the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been
obtained; and
those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s
memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the
Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our
current memorandum and articles of association permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their
capacities as such unless such losses or damages arise from dishonesty, willful default, or fraud of such directors or officers. This standard of conduct is
generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification
agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our current
memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the
foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
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Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its
shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care
that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders,
all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably
believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a
director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or
controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in
good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a
breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness
of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore
it is considered that he or she owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit
based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests
of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty
to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may
reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective
standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act
by written consent by amendment to its certificate of incorporation. Cayman Islands law and our current articles of association provide that shareholders may
approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such
matter at a general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of
shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any
other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
Cayman Islands law does not provide shareholders any right to put proposals before a meeting or requisition a general meeting. However, these rights
may be provided in articles of association. Our current articles of association allow our shareholders holding not less than one-third of all voting power of our
share capital in issue to requisition a shareholder’s meeting. Other than this right to requisition a shareholders’ meeting, our current articles of association do not
provide our shareholders other right to put proposal before a meeting. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’
annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the
corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a
board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the
shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman
Islands but our current articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights
on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for
cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our current
articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders.
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Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware
corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is
prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an
interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting
share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders
would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder,
the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This
encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business
combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide
that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority
shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution
must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it
be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of
incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound
up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due,
by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the
opinion of the court, just and equitable to do so. Under the Companies Law and our current articles of association, our company may be dissolved, liquidated or
wound up by a special resolution of our shareholders.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval
of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our current
articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of
the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares
of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the
approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law,
our current memorandum and articles of association may only be amended with a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our post-offering amended and restated memorandum and
articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in
our current memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
C.
Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on
the Company” or elsewhere in this annual report on Form 20-F.
D.
Exchange Controls
See “Item 4.B. Information on the Company—Business Overview—PRC Regulation—Regulations on Foreign Currency Exchange.”
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E.
Taxation
Cayman Islands Taxation
Travers Thorp Alberga, our Cayman Islands counsel, has advised us that the Cayman Islands currently levies no taxes on individuals or corporations
based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the
Government of the Cayman Islands that are likely to be material to holders of ADSs or ordinary shares. The Cayman Islands is not party to any double tax
treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
People’s Republic of China Taxation
Under the EIT Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC resident
enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax
reporting obligations. Under the Implementation Rules, a “de facto management body” is defined as a body that has material and overall management and
control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, SAT Circular 82
issued in April 2009 specifies that certain offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC
resident enterprises if all of the following conditions are met: (a) senior management personnel and core management departments in charge of the daily
operations of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval
by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and
shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights
habitually reside in the PRC. Further to SAT Circular 82, the SAT issued SAT Bulletin 45, which took effect in September 2011, to provide more guidance on
the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on PRC resident enterprise status
and administration on post-determination matters. If the PRC tax authorities determine that Tuniu Corporation is a PRC resident enterprise for PRC enterprise
income tax purposes, a number of unfavorable PRC tax consequences could follow. For example, Tuniu Corporation may be subject to enterprise income tax at
a rate of 25% with respect to its worldwide taxable income. Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise
shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs and potentially a 20% of
withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual
shareholders from transferring our shares or ADSs.
It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax
treaties or agreements entered into between China and other countries or areas. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing
Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes.
Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and would have a material adverse effect on our
results of operations and the value of your investment.”
The SAT issued SAT Circular 59 together with the Ministry of Finance in April 2009 and SAT Circular 698 in December 2009. Both SAT Circular 59
and SAT Circular 698 became effective retroactively as of January 1, 2008. By promulgating and implementing these two circulars, the PRC tax authorities
have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-PRC resident enterprise. The SAT
further released its Bulletin on Several Issues Concerning Enterprise Income Taxation on Income Arising from the Indirect Transfers of Property by Non-
resident Enterprises (“SAT Bulletin 2015 No. 7” or “Bulletin 7”) which became effective on February 3, 2015. Bulletin 7 repealed the relevant Indirect Transfer
provisions contained in Circular 698 and set forth more detailed rules for the tax treatment of Indirect Transfers of equity interests in PRC resident enterprises
and other assets situated in China. Bulletin 7 abolished the previous mandatory reporting requirement for Indirect Transfers under Circular 698, and provides
that the parties to an Indirect Transfer transaction have the option to decide whether to report the Indirect Transfer to the competent tax authorities. Applying a
“substance over form” principle, when a non-resident enterprise structures an Indirect Transfer of an equity interest in a PRC resident enterprise or other assets
situated in China to avoid taxation under the EIT through arrangements lacking reasonable commercial purposes, the Indirect Transfer will be re-characterized
as a direct transfer. As a result, any gains derived from the Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. Bulletin 7 provides
de facto safe harbor treatment for situations in which a non-resident enterprise buys and then sells shares, in the public securities markets, of a foreign listed
company that holds an equity interest in a PRC resident enterprise, and thereby realizes a capital gain. However, in order for the safe harbor treatment to apply,
both the purchase and sale must be conducted on the public securities markets so as to preclude market manipulation, and the equity interests purchased and
sold must be those in the same enterprise. When shares sold in the public securities markets were obtained before such shares were listed on a public securities
market or were not purchased through a public securities market, or when shares were purchased on a public market but are to be sold through non-public
markets, the safe harbor treatment would not be applicable. There is uncertainty as to the interpretation and application of SAT Circular 698 and Bulletin 7 and
we and our non-PRC resident investors may be at risk of being taxed under SAT Circular 698 and Bulletin 7 and we may be required to expend valuable
resources to comply with SAT Circular 698 and Bulletin 7 or to establish that we should not be taxed under SAT Circular 698 and Bulletin 7. See “Item 3.D.
Key Information—Risk Factors—Risks Related to Doing Business in China—We face uncertainty regarding the PRC tax reporting obligations and
consequences for certain indirect transfers of our operating company’s equity interests. Enhanced scrutiny over acquisition transactions by the PRC tax
authorities may have a negative impact on potential acquisitions we may pursue in the future.”
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United States Federal Income Tax Considerations
The following discussion is a summary of United States federal income tax considerations relating to the ownership and disposition of our ADSs or
ordinary shares by a U.S. Holder, as defined below, that holds our ADSs or ordinary shares as “capital assets” (generally, property held for investment) under
the United States Internal Revenue Code of 1986, as amended (the “Code”). This discussion is based upon existing United States federal income tax law, which
is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service (the “IRS”) with
respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary
position. This discussion does not address all aspects of United States federal income taxation that may be important to particular investors in light of their
individual circumstances, including investors subject to special tax rules that differ significantly from those summarized below (such as, for example, certain
financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-
market treatment, partnerships and their partners, tax-exempt organizations (including private foundations), investors who are not U.S. Holders, investors that
own (directly, indirectly, or constructively) 10% or more of our voting stock, investors that hold their ADSs or ordinary shares as part of a straddle, hedge,
conversion, constructive sale or other integrated transaction), or investors that have a functional currency other than the U.S. dollar). In addition, this discussion
does not address United States federal estate, gift, Medicare, and alternative minimum tax considerations, or state, local, and non-United States tax
considerations. Each U.S. Holder is urged to consult its tax advisor regarding the United States federal, state, local, and non-United States tax considerations of
an investment in our ADSs or ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income tax
purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal
income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of
which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is
subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial
decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or ordinary
shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners
of a partnership holding our ADSs or ordinary shares are urged to consult their tax advisors regarding an investment in our ADSs or ordinary shares.
110
It is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner, for United States federal income tax purposes, of the
underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner.
Accordingly, deposits or withdrawals of our ordinary shares for our ADSs will not be subject to United States federal income tax.
Passive Foreign Investment Company Considerations
A non-United States corporation, such as our company, will be classified as a “passive foreign investment company,” or PFIC, for United States federal
income tax purposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such year consists of certain types of “passive”
income or (ii) 50% or more of the value of its assets (as determined on the basis of a quarterly average) during such year produce or are held for the production
of passive income (the “asset test”). For this purpose, cash is categorized as a passive asset and the company’s goodwill and unbooked intangibles associated
with active business activities may generally be classified as active assets. Passive income generally includes, among other things, dividends, interest, rents,
royalties, and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share
of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.
Although the law in this regard is unclear, we treat Nanjing Tuniu and its subsidiaries (our “consolidated affiliated entities”) as being owned by us for
United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to
substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. If it were determined
that we are not the owner of our consolidated affiliated entities for United States federal income tax purposes, our risk of being classified as a PFIC may
substantially increase. Assuming that we are the owner of our consolidated affiliated entities for United States federal income tax purposes and based upon our
income and assets and the market price of our ADSs, we do not believe that we were a PFIC for the taxable year ended December 31, 2015 and do not anticipate
becoming a PFIC in the foreseeable future.
While we do not believe that we were a PFIC for the taxable year ended December 31, 2015 and do not anticipate becoming a PFIC in future taxable
years, no assurance can be given in this regard because the determination of whether we will be or become a PFIC is a factual determination made annually that
will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of our ADSs may cause us to be classified as a PFIC for
the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles,
may be determined by reference to the market price of our ADSs from time to time (which may be volatile). In estimating the value of our goodwill and other
unbooked intangibles, we have taken into account our current market capitalization. If our market capitalization subsequently declines, we may be or become
classified as a PFIC for the current taxable year or future taxable years.
Furthermore, the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances
where our revenue from activities that produce passive income significantly increase relative to our revenue from activities that produce non-passive income, or
where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase. In
addition, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and
assets as non-passive or our valuation of our tangible and intangible assets, each of which may result in our becoming a PFIC for the current or subsequent
taxable years. If we were classified as a PFIC for any year during which a U.S. Holder held our ADSs or ordinary shares, we generally would continue to be
treated as a PFIC for all succeeding years during which such U.S. Holder held our ADSs or ordinary shares.
The discussion below under “Dividends” and “Sale or Other Disposition of ADSs or Ordinary Shares” is written on the basis that we will not be
classified as a PFIC for United States federal income tax purposes. The United States federal income tax rules that apply if we are classified as a PFIC for the
current taxable year or any subsequent taxable year are discussed below under “Passive Foreign Investment Company Rules.”
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Dividends
Subject to the PFIC rules described below, any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or ordinary shares
out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will generally be includible in the gross
income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the
depositary bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of United States federal income tax
principles, a U.S. Holder should expect that any distribution paid on our ADSs or ordinary shares will be treated as a “dividend” for United States federal
income tax purposes. A non-corporate recipient of dividend income will generally be subject to tax on dividend income from a “qualified foreign corporation”
at a lower applicable capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain holding period and other
requirements are met.
A non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding
taxable year) will be considered to be a qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United States
which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information
program, or (b) with respect to any dividend it pays on stock (or ADSs in respect of such stock) which is readily tradable on an established securities market in
the United States. Our ADSs are listed on the NASDAQ Global Market, which is an established securities market in the United States, and will be considered
readily tradable on an established securities market for as long as the ADSs continue to be listed on the NASDAQ Global Market. Thus, we believe that we will
be a qualified foreign corporation with respect to dividends we pay on our ADSs, but there can be no assurance that our ADSs will continue to be considered
readily tradable on an established securities market in later years. Since we do not expect that our ordinary shares will be listed on established securities
markets, it is unclear whether dividends that we pay on our ordinary shares that are not backed by ADSs currently meet the conditions required for the reduced
tax rate. However, in the event we are deemed to be a PRC resident enterprise under the EIT Law (see “People’s Republic of China Taxation”), we may be
eligible for the benefits of the United States-PRC income tax treaty (which the Secretary of the Treasury of the United States has determined is satisfactory for
this purpose) and be treated as a qualified foreign corporation with respect to dividends paid on our ADSs or ordinary shares. U.S. Holders are urged to consult
their tax advisors regarding the availability of the reduced tax rate on dividends with respect to our ADSs or ordinary shares in their particular circumstances.
Dividends received on our ADSs or ordinary shares will not be eligible for the dividends-received deduction allowed to corporations.
For United States foreign tax credit purposes, dividends paid on our ADSs or ordinary shares will be treated as income from foreign sources and will
generally constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the EIT Law, a U.S. Holder may be subject
to PRC withholding taxes on dividends paid, if any, on our ADSs or ordinary shares. A U.S. Holder may be eligible, subject to a number of complex limitations,
to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on our ADSs or ordinary shares. A U.S. Holder who
does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for United States federal income tax purposes in respect of
such withholding, but only for a year in which such U.S. Holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit
are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition of ADSs or Ordinary Shares
Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other disposition of
ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. Holder’s adjusted tax basis in such
ADSs or ordinary shares. Any capital gain or loss will be long-term gain or loss if the ADSs or ordinary shares have been held for more than one year and will
generally be United States-source gain or loss for United States foreign tax credit purposes. In the event that we are treated as a PRC resident enterprise under
the EIT Law, and gain from the disposition of the ADSs or ordinary shares is subject to tax in the PRC, such gain may be treated as PRC-source gain for foreign
tax credit purposes under the United States-PRC income tax treaty. The deductibility of a capital loss may be subject to limitations. U.S. Holders are urged to
consult their tax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs or ordinary shares, including the availability
of the foreign tax credit under their particular circumstances.
112
Passive Foreign Investment Company Rules
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, unless the U.S. Holder makes a
mark-to-market election (as described below) with respect to the ADSs, the U.S. Holder will, except as discussed below, be subject to special tax rules that have
a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S. Holder (which generally means any
distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual distributions paid in the three preceding taxable years or,
if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain
circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:
(cid:120)
(cid:120)
(cid:120)
the excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;
the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which
we are classified as a PFIC (each, a pre-PFIC year) will be taxable as ordinary income;
the amount allocated to each prior taxable year, other than the current taxable year or a pre-PFIC year, will be subject to tax at the highest tax rate
in effect applicable to the individuals or corporations, as appropriate, for that year; and
(cid:120) will be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect to each prior taxable year, other than a
pre-PFIC year.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares and any of our non-United States subsidiaries is
also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application
of these rules. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respect to our ADSs,
provided that the ADSs are regularly traded on the NASDAQ Global Market. We anticipate that the ADSs should qualify as being regularly traded, but no
assurances may be given in this regard. If a mark-to-market election is made, the U.S. Holder will generally (i) include as ordinary income for each taxable year
that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and
(ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable
year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in
the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes an effective mark-to-market
election, in each year that we are a PFIC, any gain recognized upon the sale or other disposition of the ADSs will be treated as ordinary income and loss will be
treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a
PFIC, the U.S. Holder will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not
classified as a PFIC.
Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder who makes a mark-to-market election
with respect to our ADSs may continue to be subject to the general PFIC rules with respect to such U.S. Holder’s indirect interest in any of our non-United
States subsidiaries that is classified as a PFIC.
113
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if available, would result in tax
treatment different from the general tax treatment for PFICs described above.
As discussed above under “Dividends,” dividends that we pay on our ADSs or ordinary shares will not be eligible for the reduced tax rate that applies
to qualified dividend income if we are classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year. In addition, if a U.S.
Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, such U.S. Holder must file an annual report with the IRS, subject to
certain limited exceptions. Each U.S. Holder is urged to consult its tax advisor concerning the United States federal income tax consequences of owning and
disposing our ADSs or ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election and the unavailability of the
qualified electing fund election.
Information Reporting
Certain U.S. Holders are required to report information to the Internal Revenue Service relating to an interest in “specified foreign financial assets,”
including shares issued by a non-United States corporation, for any year in which the aggregate value of all specified foreign financial assets exceeds $50,000
(or a higher dollar amount prescribed by the Internal Revenue Service), subject to certain exceptions. These rules also impose penalties if a U.S. Holder is
required to submit such information to the Internal Revenue Service and fails to do so.
In addition, U.S. Holders may be subject to information reporting to the IRS with respect to dividends on and proceeds from the sale or other
disposition of our ADSs or ordinary shares. Each U.S. Holder is advised to consult with its tax advisor regarding the application of the United States
information reporting rules to their particular circumstances.
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
We previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-195075), as amended, including the prospectus
contained therein, to register the issuance and sale of our ordinary shares represented by ADSs in relation to our initial public offering. We have also filed with
the SEC registration statements on Form F-6 (Registration No. 333-195515) to register our ADSs.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers, and are required
to file reports and other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four months after the end
of each fiscal year, which is December 31. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov or
inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of
documents, upon payment of a duplicating fee, by writing to the SEC. As a foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting
and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
We will furnish JPMorgan Chase Bank, N.A., the depositary of our ADSs, with our annual reports, which will include a review of operations and
annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and
communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders
of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the
depositary from us.
114
In accordance with NASDAQ Stock Market Rule 5250(d), we will post this annual report on Form 20-F on our website at http://ir.tuniu.com. In
addition, we will provide hardcopies of our annual report free of charge to shareholders and ADS holders upon request.
I.
Subsidiary Information
Not applicable.
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank
deposits. We have not used derivative financial instruments in our investment portfolio. Interest earning instruments carry a degree of interest rate risk. We have
not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future interest income may fall
short of expectations due to changes in market interest rates.
Foreign Exchange Risk
All of our revenues and substantially all of our expenses are denominated in Renminbi. We do not believe that we currently have any significant direct
foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although in general our exposure to foreign
exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between the U.S. dollar and the Renminbi
because the value of our business is effectively denominated in Renminbi, while our ADSs will be traded in U.S. dollars.
The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by
China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the value of the Renminbi
to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this
appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has
fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may
impact the exchange rate between the Renminbi and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an
adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of
making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have
a negative effect on the U.S. dollar amounts available to us.
As of December 31, 2015, we had Renminbi-denominated cash and cash equivalents, restricted cash and short-term investments of RMB3,666.6
million, and U.S. dollar-denominated cash, cash equivalents and short-term investments of US$566.0 million. Assuming we had converted RMB1.0 million into
U.S. dollars at the exchange rate of RMB6.4778 for US$1.00 as of December 31, 2015, our U.S. dollar cash balance would have been US$154,373. If the
Renminbi had depreciated by 10% against the U.S. dollar, our U.S. dollar cash balance would have been US$140,339 instead. Assuming we had converted
US$1.0 million into Renminbi at the exchange rate of RMB6.4778 for US$1.00 as of December 31, 2015, our Renminbi cash balance would have been RMB6.5
million. If the Renminbi had depreciated by 10% against the U.S. dollar, our Renminbi cash balance would have been RMB7.1 million instead. We have not
used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk.
Inflation
Inflation in China has not materially affected our results of operations in recent years. According to the National Bureau of Statistics of China, the year-
over-year percent changes in the consumer price index for December 2013, 2014 and 2015 were increases of 2.5%, 1.5% and 1.6%, respectively. Although we
have not been materially affected by inflation in the past, we may be materially affected if China experiences higher rates of inflation in the future.
115
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 and Charges Our ADS holders May Have to Pay
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in
respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a
merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal
of deposited securities or whose ADRs are cancelled or reduced for any other reason, US$5.00 for each 100 ADSs (or any portion thereof) issued, delivered,
reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of
a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering
ADSs or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock
regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
a fee of US$1.50 per ADR for transfers of certificated or direct registration ADRs;
a fee of up to US$0.05 per ADS for any cash distribution made pursuant to the deposit agreement;
a fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which
fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record
dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision);
a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without
limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or
any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of
securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary’s
or its custodian’s compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against
holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by
deducting such charge from one or more cash dividends or other cash distributions);
116
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the US$0.05
per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating
all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the
depositary to those holders entitled thereto;
stock transfer or other taxes and other governmental charges;
cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of shares;
transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or
withdrawal of deposited securities;
the fees, expenses and other charges charged by JPMorgan Chase Bank, N.A. and/or its agent (which maybe a division, branch or affiliate) in
connection with the conversion of foreign currency into U.S. dollars; and
fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public and/or private sale
of securities under the deposit agreement.
JPMorgan Chase Bank, N.A. and/or its agent may act as principal for such conversion of foreign currency. We will pay all other charges and expenses
of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The charges
described above may be amended from time to time by agreement between us and the depositary.
Fees and Other Payments Made by the Depositary to Us
The depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADR program upon
such terms and conditions as we and the depositary may agree from time to time. The depositary may make available to us a set amount or a portion of the
depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the depositary may agree from time to time. The
depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal
or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed
or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash
distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off
the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary,
the depositary may refuse to provide any further services to holders that have not paid those fees and expenses owing until such fees and expenses have been
paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the
depositary. For the fiscal year 2015, we received a reimbursement of approximately US$1.1 million from the depositary net of US$0.3 million United States
withholding tax.
The fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of
any increase in any such fees and charges.
Item 13.
Defaults, Dividend Arrearages and Delinquencies
None.
PART II
117
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
See “Item 10.B. Additional Information—Memorandum and Articles of Association—Ordinary Shares” for a description of the rights of our securities
holders, which remain unchanged. For information on limitations on our payment of dividends, see “Item 4.B. Information on the Company—Business
Overview—PRC Regulation—Regulations on Dividend Distribution” and “Item 12.D. Description of Securities Other than Equity Securities— American
Depositary Shares.”
The following “Use of Proceeds” information relates to the registration statement on Form F-1, or the Form F-1, as amended (File No. 333-195075) in
relation to our initial public offering, which registration statement was declared effective by the SEC on May 8, 2014. In May 2014, we completed our initial
public offering in which we issued and sold an aggregate of 8,580,000 ADSs, representing 25,740,000 Class A ordinary shares. Morgan Stanley, Credit Suisse,
and China Renaissance were the representatives of the underwriters for our initial public offering. We received proceeds of approximately US$68.2 million
from our initial public offering.
For the period from May 8, 2014, the date that the Form F-1 was declared effective by the SEC, through December 31, 2015, we used all the net
proceeds we received from our initial public offering for the following purposes, as set forth in the Form F-1: (i) expanding our sales and marketing efforts;
(ii) expanding our product selection and offerings; (iii) strengthening our technology and products developments capabilities; and (iv) general corporate
purposes, including funding strategic investments in and acquisitions of complementary businesses, assets and technologies. We still intend to continue using
the remainder of the proceeds from our initial public offering for the above purposes, in line with our disclosure in the Form F-1.
We filed another registration statement on Form F-1 (File No. 333-200667) in relation to the sale of our ordinary shares represented by ADSs in a
follow-on public offering. We filed a Registration Withdrawal Request (File No. 333-200667) related to that follow-on offering on December 14, 2014 because
we were able to acquire funds on favorable terms by entering into a share subscription agreement with five investors, including the respective personal holding
companies of Tuniu’s chief executive officer and chief operating officer, pursuant to which we sold newly issued class A ordinary shares to the investors.
Item 15.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2015, the end of
the period covered by this annual report.
Based upon that evaluation, our management has concluded that, as of December 31, 2015, our disclosure controls and procedures were effective in
ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow
timely decisions regarding required disclosure.
Internal Control over Financial Reporting
In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2013 and 2014, we and our
independent registered public accounting firm identified one material weakness in our internal control over financial reporting, as defined in the standards
established by the U.S. Public Company Accounting Oversight Board of the United States, or PCAOB. A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis. The material weakness identified related to the lack of sufficient financial reporting and
accounting personnel with appropriate knowledge of US GAAP and the SEC reporting requirements to formalize key controls over financial reporting and to
prepare and review consolidated financial statements and related disclosures. The material weakness, if not timely remedied, may lead to significant
misstatements in our consolidated financial statements in the future.
118
To remedy our identified material weakness, we have adopted several measures to improve our internal control over financial reporting. We have hired
personnel with relevant experience and necessary expertise to strengthen our financial reporting function and to set up a financial and system control
framework. In early 2013, we hired our chief finance officer, who has extensive experience with multiple U.S.-listed companies, to lead our financial
department. We also hired personnel with U.S. GAAP experience who formerly worked in Big Four accounting firms, including our finance controller who was
formerly a senior manager at a Big Four accounting firm, who joined us in April 2014, and our U.S. GAAP financial reporting manager, who joined us in late
2015, as well as four additional accounting staff members, three with Big Four accounting firm experience and the other one with financial reporting experience
for a U.S.-listed company.
In addition to hiring experienced personnel, we have maintained regular and ongoing U.S. GAAP accounting and financial reporting training programs
for our accounting and financial reporting personnel. Our accounting and financial reporting personnel attend training seminars on U.S. GAAP, SEC reporting
and other accounting-related topics provided by Big Four accounting firms and other professional organizations on a regular basis to maintain up-to-date
knowledge on U.S. GAAP and SEC rules.
We have developed and implemented a comprehensive set of U.S. GAAP policies and standardized financial closing and reporting procedures,
including an accounting manual and financial closing and reporting checklists.
Moreover, we have set up an internal audit department in September 2014, comprising of a department head and an internal audit manager, each with
more than ten years of relevant experience, as well as one former Big Four auditor, to focus on internal audits. In addition, we have engaged a professional
consulting firm to assist us to improve our overall internal controls for complying with the Sarbanes-Oxley Act of 2002, which are supervised by our
independent audit committee in December 2014.
As of December 31, 2015, based on our management assessment on the performance of the above mentioned remediation measures, we determined
that the material weakness previously identified in our internal control over financial reporting had been remediated.
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this
annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 Generally
Accepted Accounting Principles (GAAP) in the United States of America and 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 our company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and
expenditures of our company are being made only in accordance with authorizations of our management and directors; and (iii) 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 has excluded all the travel agencies (as discussed in Note 4 of the Notes to the Consolidated Financial Statements) that we acquired
during 2015 from our assessment of the effectiveness of the internal control over financial reporting as of December 31, 2015. The financial statements of the
travel agencies in aggregate constitute approximately 2.7% of the total assets and 6.8% of the net revenue of the respective amounts presented in the
consolidated financial statements as of and for the year ended December 31, 2015.
119
Our management conducted an evaluation of the effectiveness of our company’s internal control over financial reporting as of December 31, 2015
based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in
2013. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.
PricewaterhouseCoopers Zhong Tian LLP, our independent registered public accounting firm, audited the effectiveness of our company’s internal
control over financial reporting as of December 31, 2015, which has also excluded the travel agencies acquired during 2015 from audit of internal control over
financial reporting, as stated in its report, which appears on page F-2 of this Form 20-F.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this
annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A.
Audit Committee Financial Expert
Our board of directors has determined that Mr. Onward Choi and Mr. Jack Xu, each an independent director (under the standards set forth in NASDAQ
Stock Market Rule 5605(a)(2) and Rule 10A-3 under the Exchange Act) and a member of our audit committee, are audit committee financial experts.
Item 16B.
Code of Ethics
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees, including certain provisions
that specifically apply to our chief executive officers, chief financial officer, senior finance officer and any other persons who perform similar functions for us.
We filed our code of business conduct and ethics as Exhibit 99.1 to our registration statement on Form F-1, as amended, which was originally filed with the
SEC on April 4, 2014. We have posted a copy of our code of business conduct and ethics on our website at http://ir.tuniu.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 external auditors, for the periods indicated.
Audit fees(1)
Audit-related fees(2)
Tax fees(3)
2014
2015
US$
US$
US$
834,450 US$
1,134,844
58,102
1,436,719
—
—
(1) “Audit fees” means the aggregate fees billed for professional services rendered by our principal external auditors for the audits of our annual financial
statements and effectiveness of internal control over financial reporting, as well as the quarterly reviews of condensed consolidated financial information. In
2014, services rendered by our principal external auditors did not include audit of effectiveness of internal control over financial reporting.
(2) “Audit-related fees” means the aggregate fees billed for assurance and related services rendered by our principal external auditors that are reasonably
related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit fees”. No audit-related services
were provided by our principal external auditors in 2015.
(3) “Tax fees” means the aggregate fees billed for professional services rendered by our principal external auditors for tax advice and tax planning. No tax
services were provided by our principal external auditors in 2015.
120
The policy of our audit committee is to pre-approve all audit and non-audit services provided by PricewaterhouseCoopers Zhong Tian LLP, including
audit services, audit-related services and tax services as described above, other than those for de minimis services which are approved by the audit committee
prior to the completion of the audit.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F.
Change in Registrant’s Certifying Accountant
Not applicable.
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. Travers Thorp Alberga, our Cayman Islands
counsel, has advised us that certain corporate governance practices in the Cayman Islands, our home country, may differ significantly from the NASDAQ
corporate governance listing standards. We followed home country practice for our private placements in December 2014, May 2015 and January 2016, which
would have required shareholder approval under the NASDAQ Rules but for which there was no such requirement under Cayman Islands law. In addition, we
have elected to follow home country practice in lieu of the requirement to hold an annual meeting of shareholders under NASDAQ Rule 5620(a).
We currently do not plan to rely on the home country exemption for any other corporate governance matters. However, if we choose to follow home
country practice in other matters in the future, 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 3.D. Key Information — Risk Factors — Risks Related to Our ADSs — We are a
foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States
domestic public companies.”
Item 16H.
Mine Safety Disclosure
Not applicable.
Item 17.
Financial Statements
We have elected to provide financial statements pursuant to Item 18.
Item 18.
Financial Statements
PART III
The consolidated financial statements of Tuniu Corporation, its subsidiaries and its consolidated affiliated entities are included at the end of this annual
report.
121
Item 19.
Exhibits
Exhibit
Number
Description of Document
1.1
2.1
2.2
2.3
2.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Fifth Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form F-1 (file no. 333-195075), as amended, initially filed with the Securities and Exchange Commission on
April 4, 2014).
Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3).
Registrant’s Specimen Certificate for Class A ordinary shares (incorporated herein by reference to Exhibit 4.2 to the registration statement
on Form F-1 (File No. 333-195075), as amended, initially filed with the Security and Exchange Commission on April 4, 2014).
Deposit Agreement among the Registrant, the depositary and holders of the American Depositary Receipts dated May 8, 2014
(incorporated herein by reference to Exhibit 4.3 to the registration statement on Form S-8 (File No. 333-198111), filed with the Security
and Exchange Commission on August 13, 2014).
Third Amended and Restated Investors’ Rights Agreement dated as of August 28, 2013 among the Registrant, its ordinary shareholders,
preferred shareholders and several other parties named therein (incorporated herein by reference to Exhibit 4.4 to the registration statement
on Form F-1 (File No. 333-195075), as amended, initially filed with the Security and Exchange Commission on April 4, 2014).
2008 Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.1 to the registration statement on Form F-1 (File
No. 333-195075), as amended, initially filed with the Security and Exchange Commission on April 4, 2014).
2014 Share Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form F-1 (File No. 333-
195075), as amended, initially filed with the Security and Exchange Commission on April 4, 2014).
Form of Indemnification Agreement with the Registrant’s directors (incorporated herein by reference to Exhibit 10.3 to the registration
statement on Form F-1 (File No. 333-195075), as amended, initially filed with the Security and Exchange Commission on April 4, 2014).
English Translation of Form of Employment Agreement between the Registrant and an Executive Officer of the Registrant (incorporated
herein by reference to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-195075), as amended, initially filed with the
Security and Exchange Commission on April 4, 2014).
English Translation of Amended and Restated Cooperation Agreement dated January 24, 2014 between Beijing Tuniu and Nanjing Tuniu
(incorporated herein by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-195075), as amended, initially
filed with the Security and Exchange Commission on April 4, 2014).
English Translation of Shareholders’ Voting Rights Agreement dated September 17, 2008 among Beijing Tuniu, Nanjing Tuniu and the
shareholders of Nanjing Tuniu (incorporated herein by reference to Exhibit 10.6 to the registration statement on Form F-1 (File No. 333-
195075), as amended, initially filed with the Security and Exchange Commission on April 4, 2014).
English Translation of Amended and Restated Powers of Attorney dated January 24, 2014 granted to Beijing Tuniu by each of the
shareholders of Nanjing Tuniu (incorporated herein by reference to Exhibit 10.7 to the registration statement on Form F-1 (File No. 333-
195075), as amended, initially filed with the Security and Exchange Commission on April 4, 2014).
122
Exhibit
Number
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
Description of Document
English Translation of Equity Interest Pledge Agreement dated September 17, 2008 among Beijing Tuniu and the shareholders of Nanjing
Tuniu (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form F-1 (File No. 333-195075), as amended,
initially filed with the Security and Exchange Commission on April 4, 2014).
Subscription Agreement dated April 27, 2014 between Tuniu Corporation and Ctrip Investment Holding Ltd. (incorporated herein by
reference to Exhibit 10.13 to the registration statement on Form F-1 (File No. 333-195075), as amended, initially filed with the Security
and Exchange Commission on April 4, 2014).
Subscription Agreement dated April 25, 2014 between Tuniu Corporation and DCM Hybrid RMB Fund, L.P. (incorporated herein by
reference to Exhibit 10.11 to the registration statement on Form F-1 (File No. 333-195075), as amended, initially filed with the Security
and Exchange Commission on April 4, 2014).
Subscription Agreement dated April 25, 2014 between Tuniu Corporation and Qihoo 360 Technology Co. Ltd. (incorporated herein by
reference to Exhibit 10.12 to the registration statement on Form F-1 (File No. 333-195075), as amended, initially filed with the Security
and Exchange Commission on April 4, 2014).
Subscription Agreement dated December 15, 2014 between Tuniu Corporation, JD.com E-commerce (Investment) Hong Kong Corporation
Limited, Unicorn Riches Limited, Ctrip Investment Holding Ltd., Verne Capital Limited and Dragon Rabbit Capital Limited. (incorporated
by reference to Exhibit 4.12 from our annual report on Form 20-F (file no. 001-36430) filed with the Securities and Exchange Commission
on April 17, 2015).
Subscription Agreement dated May 8, 2015 between Tuniu Corporation and Fabulous Jade Global Limited (incorporated herein by
reference to Exhibit 99.5 to amendment no. 1 to Schedule 13D filed by JD.com, Inc. and its affiliates with the Securities and Exchange
Commission on May 29, 2015).
Subscription Agreement dated May 8, 2015 between Tuniu Corporation and Unicorn Riches Limited (incorporated herein by reference to
Exhibit 7.02 to Schedule 13D filed by Unicorn Riches Limited and its affiliates with the Securities and Exchange Commission on May 18,
2015).
Subscription Agreement dated May 8, 2015 between Tuniu Corporation and Sequoia Capital 2010 CV Holdco, Ltd. (incorporated herein by
reference to Exhibit 99.4 to amendment no. 2 to Schedule 13D filed by Sequoia Capital 2010 CV Holdco, Ltd. with the Securities and
Exchange Commission on May 18, 2015).
Subscription Agreement dated May 8, 2015 between Tuniu Corporation and DCM Ventures China Turbo Fund, L.P. and DCM Ventures
China Turbo Affiliates Fund, L.P. (incorporated herein by reference to Exhibit 2 to amendment no. 2 to Schedule 13D filed by DCM
Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P. with the Securities and Exchange Commission on
May 28, 2015).
Business Cooperation Agreement dated May 8, 2015 between Tuniu Corporation and JD.com, Inc. (incorporated herein by reference to
Exhibit 99.6 to amendment no. 1 to Schedule 13D filed by JD.com, Inc. and its affiliates with the Securities and Exchange Commission on
May 29, 2015).
Investor Rights Agreement dated May 22, 2015 between Tuniu Corporation and Fabulous Jade Global Limited (incorporated herein by
reference to Exhibit 99.7 to amendment no. 1 to Schedule 13D filed by JD.com, Inc. and its affiliates with the Securities and Exchange
Commission on May 29, 2015).
123
Exhibit
Number
4.19
4.20
4.21
4.22
4.23
4.24
8.1*
11.1
12.1*
12.2*
13.1**
13.2**
Description of Document
Registration Rights Agreement dated as of May 22, 2015 between Tuniu Corporation and Unicorn Riches Limited (incorporated herein by
reference to Exhibit 7.08 to amendment no. 1 to Schedule 13D filed by Unicorn Riches Limited with the Securities and Exchange
Commission on May 26, 2015).
Subscription Agreement dated as of November 20, 2015 between Tuniu Corporation and HNA Tourism Holding (Group) Co., Ltd.
(incorporated herein by reference to Exhibit 7.1 to Schedule 13D filed by BHR Winwood Investment Management Limited and its
affiliates with the Securities and Exchange Commission on February 1, 2016).
Amendment No. 1 to Subscription Agreement dated as of December 31, 2015 between Tuniu Corporation and HNA Tourism Holding
(Group) Co., Ltd. (incorporated herein by reference to Exhibit 7.2 to Schedule 13D filed by BHR Winwood Investment Management
Limited and its affiliates with the Securities and Exchange Commission on February 1, 2016).
Investor Rights Agreement dated as of November 20, 2015 between Tuniu Corporation and HNA Tourism Holding (Group) Co., Ltd.
(incorporated herein by reference to Exhibit 7.3 to Schedule 13D filed by BHR Winwood Investment Management Limited and its
affiliates with the Securities and Exchange Commission on February 1, 2016).
Amendment No. 1 to Investor Rights Agreement dated as of December 31, 2015 between Tuniu Corporation and HNA Tourism Holding
(Group) Co., Ltd. (incorporated herein by reference to Exhibit 7.4 to Schedule 13D filed by BHR Winwood Investment Management
Limited and its affiliates with the Securities and Exchange Commission on February 1, 2016).
Amendment No. 2 to Investor Rights Agreement dated February 19, 2016 between Tuniu Corporation and BHR Winwood Investment
Management Limited (incorporated herein by reference to Exhibit A to amendment no. 1 to Schedule 13D filed by BHR Winwood
Investment Management Limited and its affiliates with the Securities and Exchange Commission on February 29, 2016).
List of Significant Subsidiaries.
Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement on
Form F-1 (File No. 333-195075), as amended, initially filed with the Security and Exchange Commission on April 4, 2014).
Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1*
Consent of PricewaterhouseCoopers Zhong Tian LLP.
124
Exhibit
Number
15.2*
15.3*
Consent of Travers Thorp Alberga.
Consent of Fangda Partners.
Description of Document
101.INS*
XBRL Instance Document.
101.SCH*
XBRL Taxonomy Extension Schema Document.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
*
Filed herewith
** Furnished herewith
125
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
Date: April 28, 2016
Tuniu Corporation
By:
/s/ Dunde Yu
Name: Dunde Yu
Title: Chairman and Chief Executive Officer
126
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2015
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2013, 2014 and 2015
Consolidated Statements of Changes in Shareholders’ Equity/(Deficit) for the Years Ended December 31, 2013, 2014 and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2014 and 2015
Notes to the Consolidated Financial Statements
Financial Statements Schedule I - Condensed financial information of the Parent Company
F-2
F-3
F-4
F-5
F-7
F-8
F-40
F-1
To the Board of Directors and Shareholders of Tuniu Corporation:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive loss, of changes in shareholders’
equity/(deficit) and of cash flows present fairly, in all material respects, the financial position of Tuniu Corporation and its subsidiaries at December 31, 2015
and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity
with accounting principles generally accepted in the United States of America. In addition, in our opinion, the accompanying financial statements schedule I
present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for these 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 in Item 15 of this Form 20-F. Our responsibility is to express opinions on these financial statements and on the Company’s internal control
over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.
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.
As described in Management’s Report on Internal Control over Financial Reporting appearing under Item 15 in the accompanying Form 20-F, management has
excluded the four travel agencies acquired during 2015, as described in Note 4 to the consolidated financial statements, from its assessment of internal control
over financial reporting as of December 31, 2015 because the travel agencies were acquired by the Company in purchase business combinations during 2015.
We have also excluded these travel agencies acquired during 2015 from our audit of internal control over financial reporting. These travel agencies excluded are
subsidiaries of the Company which in aggregate constitute 2.7% and 6.8% of the total assets and the net revenues, respectively, of the related consolidated
financial statement amounts as of and for the year ended December 31, 2015.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
April 28, 2016
F-2
TUNIU CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 2014 and 2015
(All amounts in thousands, except for share and per share data, or otherwise noted)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net
Amounts due from related parties
Prepayments and other current assets
Total current assets
Non-current assets
Property and equipment, net
Intangible assets, net
Goodwill
Other non-current assets
Total non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities (including current liabilities of the Affiliated Entities without
recourse to the Company amounting to RMB1,168,078 and RMB3,325,804, as of
December 31, 2014 and December 31, 2015, respectively):
Accounts payable
Amounts due to related parties
Salary and welfare payable
Taxes payable
Advances from customers
Accrued expenses and other current liabilities
Total current liabilities
Non-current liabilities
Total liabilities
Commitments and contingencies (Note 17)
Equity
Ordinary shares (US$0.0001 par value; 1,000,000,000 shares (including
780,000,000 Class A shares, 120,000,000 Class B shares and 100,000,000
shares to be designated by the Board of Directors) authorized as of December
31, 2014 and 2015; 188,435,922 shares (including 82,487,876 Class A shares
and 105,948,046 Class B shares) and 286,970,892 shares (including
269,597,392 Class A shares and 17,373,500 Class B shares) issued and
outstanding as of December 31, 2014 and 2015, respectively)
Additional paid-in capital
Accumulated other comprehensive income/(loss)
Accumulated deficit
Total Tuniu Corporation shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
2014
RMB
As of December 31,
2015
RMB
US$ (Note 2(d))
1,457,722
44,030
468,570
8,008
637
575,297
2,554,264
72,310
3,075
—
15,368
90,753
2,645,017
382,705
—
78,739
3,884
638,828
109,860
1,214,016
22,278
1,236,294
2,101,217
338,997
1,226,415
113,252
60,004
1,699,468
5,539,353
145,190
715,548
136,569
649,481
1,646,788
7,186,141
767,307
28,762
147,389
8,429
1,223,313
1,615,433
3,790,633
57,785
3,848,418
324,372
52,332
189,326
17,483
9,263
262,353
855,129
22,414
110,462
21,083
100,261
254,220
1,109,349
118,452
4,440
22,753
1,301
188,847
249,380
585,173
8,920
594,093
121
2,298,727
(21,081)
(869,044)
1,408,723
—
1,408,723
2,645,017
181
5,482,637
167,025
(2,328,423)
3,321,420
16,303
3,337,723
7,186,141
28
846,373
25,784
(359,446)
512,739
2,517
515,256
1,109,349
The accompanying notes are an integral part of these consolidated financial statements.
F-3
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Years Ended December 31, 2013, 2014 and 2015
(All amounts in thousands, except for share and per share data, or otherwise noted)
For the Years Ended December 31,
2013
RMB
2014
RMB
2015
RMB
US$ (Note 2(d))
Revenues
Organized tours
Self-guided tours
Others
Total revenues
Less: Business and related taxes
Net revenues
Cost of revenues
Gross profit
Operating expenses
Research and product development
Sales and marketing
General and administrative
Other operating income
Total operating expenses
Loss from operations
Other income/(expenses)
Interest income
Foreign exchange gains/(losses), net
Other loss, net
Loss before income tax expense
Income tax benefit
Net loss
Net loss attributable to noncontrolling interests
Net loss attributable to Tuniu Corporation
Deemed dividends to preferred shareholders
Net loss attributable to ordinary shareholders
Net loss
Other comprehensive income/(loss)
Foreign currency translation adjustment, net of nil tax
Comprehensive loss
Comprehensive loss attributable to noncontrolling interests
Comprehensive loss attributable to Tuniu Corporation
Loss per share
Basic and diluted
Weighted average number of ordinary shares used in computing
1,892,826
48,901
20,744
1,962,471
(12,784)
1,949,687
(1,829,665)
120,022
(38,994)
(110,071)
(69,679)
1,689
(217,055)
(97,033)
16,163
1,286
(48)
(79,632)
—
(79,632)
—
(79,632)
(59,428)
(139,060)
(79,632)
(4,857)
(84,489)
—
(84,489)
3,432,825
93,126
28,756
3,554,707
(19,768)
3,534,939
(3,308,801)
226,138
(104,881)
(434,191)
(166,988)
6,902
(699,158)
(473,020)
31,284
(5,334)
(788)
(447,858)
—
(447,858)
—
(447,858)
(15,606)
(463,464)
(447,858)
(1,358)
(449,216)
—
(449,216)
7,358,879
194,162
127,745
7,680,786
(35,526)
7,645,260
(7,274,675)
370,585
(298,199)
(1,154,155)
(385,442)
12,175
(1,825,621)
(1,455,036)
76,516
(83,118)
(1,336)
(1,462,974)
589
(1,462,385)
(3,006)
(1,459,379)
—
(1,459,379)
(1,462,385)
188,106
(1,274,279)
(3,006)
(1,271,273)
1,136,015
29,973
19,720
1,185,708
(5,484)
1,180,224
(1,123,016)
57,208
(46,034)
(178,171)
(59,502)
1,879
(281,828)
(224,620)
11,812
(12,831)
(205)
(225,844)
91
(225,753)
(464)
(225,289)
—
(225,289)
(225,753)
29,038
(196,715)
(464)
(196,251)
(5.35)
(4.38)
(5.88)
(0.91)
basic and diluted loss per share
26,000,000
105,746,313
248,362,837
248,362,837
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY/(DEFICIT)
For the Years Ended December 31, 2013, 2014 and 2015
(All amounts in thousands, except for share and per share data, or otherwise noted)
Additional
paid-in capital
RMB
Accumulated other
comprehensive
income/(loss)
RMB
Balance as of January 1, 2013
Foreign currency translation adjustments
Deemed dividend from redesignation of Series A
Convertible Preferred Shares
Net loss
Balance as of December 31, 2013
Capital contribution from shareholders of VIE
Conversion of Series A,B,C and D Convertible
Preferred Shares into ordinary shares upon the
completion of initial public offering
Issuance of ordinary shares upon the initial public
offering, net of issuance costs of RMB22,732
Issuance of ordinary shares upon the private
placement, net of issuance costs of RMB14,279
Issuance of ordinary shares pursuant to share incentive
plan
Share-based compensation expenses
Foreign currency translation adjustments
Deemed dividend from modification of Series D
Convertible Preferred Shares
Net loss
Balance as of December 31, 2014
Ordinary shares
Shares
26,000,000
—
—
—
26,000,000
—
85,852,919
37,406,666
36,812,868
2,363,469
—
—
Amount
RMB
18
—
—
—
18
—
56
23
22
2
—
—
200
—
—
—
200
70
731,991
632,449
891,491
3,353
39,173
—
—
—
188,435,922
—
—
121
—
—
2,298,727
Total Tuniu
Corporation
Shareholders’ equity Noncontrolling
(deficit)
RMB
interests
RMB
Total
Equity/(Deficit)
RMB
(281,168)
(4,857)
(59,428)
(79,632)
(425,085)
70
732,047
632,472
891,513
3,355
39,173
(1,358)
(15,606)
(447,858)
1,408,723
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(281,168)
(4,857)
(59,428)
(79,632)
(425,085)
70
732,047
632,472
891,513
3,355
39,173
(1,358)
(15,606)
(447,858)
1,408,723
Accumulated
deficit
RMB
(266,520)
—
(59,428)
(79,632)
(405,580)
—
—
—
—
—
—
—
(15,606)
(447,858)
(869,044)
(14,866)
(4,857)
—
—
(19,723)
—
—
—
—
—
—
(1,358)
—
—
(21,081)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY/(DEFICIT)
For the Years Ended December 31, 2013, 2014 and 2015
(All amounts in thousands, except for share and per share data, or otherwise noted)
Ordinary shares
Shares
Amount
RMB
Additional
paid-in capital
RMB
Accumulated other
comprehensive
income/(loss)
RMB
Accumulated
Deficit
RMB
Total Tuniu
Corporation
Shareholders’ equity Noncontrolling
(deficit)
RMB
interests
RMB
Total
Equity/(Deficit)
RMB
Issuance of ordinary shares upon the private
placement, net of issuance costs of RMB1,078
Acquisition of subsidiaries
Issuance of ordinary shares pursuant to share incentive
plan
Share-based compensation expenses
Foreign currency translation adjustments
Acquisition of noncontrolling interests
Net loss
Balance as of December 31, 2015
93,750,000
—
4,784,970
—
—
—
—
286,970,892
57
—
3
—
—
—
—
181
3,104,457
—
14,993
65,143
—
(683)
—
5,482,637
—
—
—
—
188,106
—
—
167,025
—
—
—
—
—
—
(1,459,379)
(2,328,423)
3,104,514
—
14,996
65,143
188,106
(683)
(1,459,379)
3,321,420
—
20,122
—
—
—
(813)
(3,006)
16,303
3,104,514
20,122
14,996
65,143
188,106
(1,496)
(1,462,385)
3,337,723
The accompanying notes are an integral part of these consolidated financial statements.
F-6
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2013, 2014 and 2015
(All amounts in thousands, except for share and per share data, or otherwise noted)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by /
(used in) operating activities:
Depreciation of property and equipment
Amortization of intangible assets
Foreign exchange (gain)/loss
Loss from disposal of property and equipment
Share-based compensation expenses
Change of deferred tax liabilities
Changes in operating assets and liabilities:
Accounts receivable
Amounts due from related parties
Prepayments and other current assets
Other non-current assets
Accounts payable
Amounts due to related parties
Taxes payable
Advances from customers
Accrued expenses and other liabilities
Net cash provided by /(used in) operating activities
Cash flows from investing activities:
Purchase of short-term investments
Proceeds from maturity of short-term investments
Changes in restricted cash
Purchase of property and equipment and intangible assets
Proceeds from disposal of property and equipment
Acquisition, net of cash received
Purchase of yield enhancement products
Proceeds from maturity of yield enhancement products
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of Series D Convertible Preferred
Shares, net of issuance cost
Proceeds from the initial public offering, net of issuance
cost
Proceeds from the private placement, net of issuance cost
Proceeds from issuance of ordinary shares upon exercise of
options
Proceeds from sales of yield enhancement products
Repayment of short-term debt
Acquisition of noncontrolling interests
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
Supplemental disclosure of non-cash investing and
financing activities
Accrual related to purchase of property and equipment
Deemed dividends to preferred shareholders
Accrued issuance cost related to private placement
Accrual related to deferred initial public offering costs
Receivables related to exercise of stock options
Accrual related to business acquisition
For the Years Ended December 31,
2013
RMB
2014
RMB
2015
RMB
US$ (Note 2(d))
(79,632)
(447,858)
(1,462,385)
(225,753)
8,764
482
(1,286)
114
—
—
4,574
—
(159,510)
(331)
161,608
—
725
152,524
28,704
116,736
(451,800)
154,800
(2,375)
(4,843)
—
—
—
—
(304,218)
306,360
—
—
—
—
—
—
306,360
1,287
120,165
299,238
419,403
117
59,428
—
2,127
—
—
10,869
984
2,729
62
39,173
—
(6,356)
(637)
(287,811)
(13,374)
84,394
—
2,560
242,090
102,073
(271,102)
(547,575)
405,000
(34,780)
(50,622)
54
—
—
—
(227,923)
—
632,472
905,590
2,335
—
—
—
1,540,397
(3,053)
1,038,319
419,403
1,457,722
9,345
15,606
14,076
—
(1,020)
—
28,041
57,810
106,271
210
65,143
(1,057)
(74,475)
(59,367)
(600,346)
(317,775)
320,502
28,762
4,089
532,335
857,507
(514,735)
(1,139,691)
442,136
(294,387)
(155,478)
155
(60,149)
(718,619)
10,865
(1,915,168)
—
—
2,430,223
12,637
579,474
(15,000)
(1,496)
3,005,838
67,560
643,495
1,457,722
2,101,217
18,953
—
—
—
(3,379)
42,116
4,329
8,924
16,405
32
10,056
(163)
(11,497)
(9,165)
(92,677)
(49,056)
49,477
4,440
631
82,178
132,377
(79,462)
(175,938)
68,254
(45,446)
(24,002)
24
(9,285)
(110,935)
1,677
(295,651)
—
—
375,162
1,951
89,456
(2,316)
(231)
464,022
10,429
99,338
225,034
324,372
2,926
—
—
—
(522)
6,502
The accompanying notes are an integral part of these consolidated financial statements.
F-7
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
1. Organization and Principal Activities
Tuniu Corporation (the “Company”) is an exempted company with limited liability incorporated in the Cayman Islands. The Company, its subsidiaries,
including the consolidated variable interest entity (“VIE”) and its subsidiaries (collectively referred to as the “Affiliated Entities”) are collectively referred to as
the “Group”. The Group’s principal activity is the provision of travel-related services in the People’s Republic of China (“PRC”).
As of December 31, 2015, the Company’s significant consolidated subsidiaries and the consolidated Affiliated Entities are as follows:
Name of subsidiaries and VIE
Subsidiaries of the Company:
Tuniu (HK) Limited
Tuniu (Nanjing) Information Technology Co., Ltd.
Beijing Tuniu Technology Co., Ltd. (“Beijing Tuniu”)
Variable Interest Entity (“VIE”)
Nanjing Tuniu Technology Co., Ltd. (“Nanjing Tuniu”)
Subsidiaries of VIE
Shanghai Tuniu International Travel Service Co., Ltd.
Nanjing Tuniu International Travel Service Co., Ltd.
Beijing Tuniu International Travel Service Co., Ltd.
Nanjing Tuzhilv Tickets Sales Co., Ltd.
Tianjin Classic Holiday International Travel Agency Co.,
Ltd.
Zhejiang Zhongshan International Agency Co., Ltd.
Beijing Global Tour International Travel Service Co.,
Ltd.
Tuniu Insurance Brokers Co., Ltd.
Beijing Hengxin International Travel Agency Co., Ltd.
Date of establishment/acquisition
Established on May 20, 2011
Established on August 24, 2011
Established on September 8, 2008
Established on December 18, 2006
Acquired on August 22, 2008
Acquired on December 22, 2008
Acquired on November 18, 2009
Established on April 19, 2011
Acquired on April 1, 2015
Acquired on April 1, 2015
Acquired on July 1, 2015
Acquired on August 11, 2015
Acquired on October 1, 2015
2. Principal Accounting Policies
(a) Basis of Presentation
Place of
incorporation
Hong Kong
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Percentage of
direct or indirect
economic
ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75.02%
100%
80%
The consolidated financial statements of the Group have been prepared in accordance with the accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
F-8
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, the Affiliated Entities for which the Company is
the primary beneficiary. Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power, has the
power to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of board of directors, or has the
power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
A VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally
associated with, ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity. All significant transactions and
balances among the Company, its subsidiaries and the Affiliated Entities have been eliminated upon consolidation.
To comply with PRC laws and regulations that restrict foreign equity ownership of companies that operate internet content, travel agency and air-ticketing
services, the Company operates its website and engaged in such restricted services through Nanjing Tuniu and its subsidiaries. Nanjing Tuniu’s equity interests
are held by Dunde Yu, the Company’s Chief Executive Officer, Haifeng Yan, the Company’s Chief Operating Officer, and several other PRC citizens. On
September 17, 2008, Beijing Tuniu, one of the Company’s wholly foreign owned subsidiaries, entered into a series of agreements with Nanjing Tuniu and its
shareholders. Pursuant to these agreements, Beijing Tuniu has the ability to direct substantially all the activities of Nanjing Tuniu, and absorb substantially all of
the risks and rewards of the Affiliated Entities. As a result, the Company is the primary beneficiary of Nanjing Tuniu, and has consolidated the Affiliated
Entities.
Contractual arrangements
On September 17, 2008, Beijing Tuniu entered into a series of contractual agreements with Nanjing Tuniu and its shareholders. The following is a
summary of the agreements which allow the Company to exercise effective control over Nanjing Tuniu:
(1) Purchase Option Agreement.
Under the purchase option agreement entered between Beijing Tuniu and the shareholders of Nanjing Tuniu on September 17, 2008, Beijing Tuniu
has the irrevocable exclusive right to purchase, or have its designated person or persons to purchase all or part of the shareholders’ equity interests in
Nanjing Tuniu at RMB1,800 which was increased to RMB2,430 in March 2014. The option term remains valid for a period of 10 years and can be
extended indefinitely at Beijing Tuniu’s discretion. The purchase consideration was paid by Beijing Tuniu to the shareholders of Nanjing Tuniu
shortly after the purchase option agreement was entered. On January 24, 2014, the Company amended and restated the purchase option agreement, and
the effective term of the purchase option agreement has been changed to until all equity interests held in Nanjing Tuniu are transferred or assigned to
Beijing Tuniu or its designated person or persons.
(2) Equity Interest Pledge Agreement.
Under the equity interest pledge agreement entered between Beijing Tuniu and the shareholders of Nanjing Tuniu on September 17, 2008, the
shareholders pledged all of their equity interests in Nanjing Tuniu to guarantee their performance of their obligations under the purchase option
agreement. If the shareholders of Nanjing Tuniu breach their contractual obligations under the purchase option agreement, Beijing Tuniu, as the
pledgee, will have the right to either conclude an agreement with the pledgor to obtain the pledged equity or seek payments from the proceeds of the
auction or sell-off of the pledged equity to any person pursuant to the PRC law. The shareholders of Nanjing Tuniu agreed that they will not dispose of
the pledged equity interests or create or allow any encumbrance on the pledged equity interests. During the equity pledge period, Beijing Tuniu is
entitled to all dividends and other distributions made by Nanjing Tuniu. The equity interest pledge agreement remains effective until the shareholders
of Nanjing Tuniu discharge all their obligations under the purchase option agreement, or Beijing Tuniu enforces the equity interest pledge, whichever
is earlier.
F-9
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation - continued
(3) Shareholders’ Voting Rights Agreement.
Under the shareholders’ voting rights agreement entered between Beijing Tuniu and the shareholders of Nanjing Tuniu on September 17, 2008, each
of the shareholders of Nanjing Tuniu appointed Beijing Tuniu’s designated person as their attorney-in-fact to exercise all of their voting and related
rights with respect to their equity interests in Nanjing Tuniu, including attending shareholders’ meetings, voting on all matters of Nanjing Tuniu,
nominating and appointing directors, convene extraordinary shareholders’ meetings, and other voting rights pursuant to the then effective articles of
association. The shareholders’ voting rights agreement will remain in force for an unlimited term, unless all the parties to the agreement mutually
agree to terminate the agreement in writing or cease to be shareholders of Nanjing Tuniu.
(4) Irrevocable Powers of Attorney.
Under the powers of attorney issued by the shareholders of Nanjing Tuniu on September 17, 2008, the shareholders of Nanjing Tuniu each irrevocably
appointed Mr. Tao Jiang, a person designated by Beijing Tuniu, as the attorney-in-fact to exercise all of their voting and related rights with respect to
their equity interests in Nanjing Tuniu. Each power of attorney will remain in force until the shareholders’ voting rights agreement expires or is
terminated. On January 24, 2014, the shareholders of Nanjing Tuniu issued powers of attorney to irrevocably appoint Beijing Tuniu as the attorney-in-
fact to exercise all of their voting and related rights with respect to their equity interests in Nanjing Tuniu. These powers of attorney replaced the
powers of attorney previously granted to Mr. Tao Jiang on September 17, 2008.
(5) Cooperation Agreement.
Under the cooperation agreement entered between Beijing Tuniu and Nanjing Tuniu, Beijing Tuniu has the exclusive right to provide Nanjing Tuniu
technology consulting and services related to Nanjing Tuniu’s operations, which require certain licenses. Beijing Tuniu owns the exclusive intellectual
property rights created as a result of the performance of this agreement. Nanjing Tuniu agrees to pay Beijing Tuniu a monthly service fee for services
performed, and the monthly service fee shall not be lower than 100% of Nanjing Tuniu’s profits generated from such cooperation, which equal
revenues generated from such cooperation, after deducting the expenses it incurred. This agreement remains effective for an unlimited term, unless the
parties mutually agree to terminate the agreement, one of the parties is declared bankrupt or Beijing Tuniu is not able to provide consulting and
services as agreed for more than three consecutive years because of force majeure. On January 24, 2014, the Company amended and restated the
Cooperation Agreement. In the amended and restated agreement, the service fee has been changed to a quarterly payment which equals the profits of
each of Nanjing Tuniu and its subsidiaries, and that Beijing Tuniu can adjust the service fee at its own discretion. Also in the amended and restated
Cooperation Agreement, Beijing Tuniu has the unilateral right to terminate the agreement.
In the years ended December 31, 2013, 2014 and 2015, the Company received service fees of RMB22,587, RMB20,535 and RMB42,367, respectively,
from its consolidated Affiliated Entities, which were eliminated on the consolidated financial statement.
F-10
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation - continued
Risks in relation to the VIE structure
The Group believes that each of the agreements and the powers of attorney under the contractual arrangements among Beijing Tuniu, Nanjing Tuniu and
its shareholders is valid, binding and enforceable, and does not and will not result in any violation of PRC laws or regulations currently in effect. The legal
opinion of Fangda Partners, which was the Company’s PRC legal counsel, also supports this conclusion. The shareholders of Nanjing Tuniu are also
shareholders, nominees of shareholders, or designated representatives of shareholders of the Company and therefore have no current interest in seeking to act
contrary to the contractual arrangements. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual
arrangements and if the shareholders of Nanjing Tuniu were to reduce their interest in the Company, their interests may diverge from that of the Company and
that may potentially increase the risk that they would seek to act contrary to the contractual terms.
The Company’s ability to control Nanjing Tuniu also depends on the power of attorney Beijing Tuniu has to vote on all matters requiring shareholder
approval in Nanjing Tuniu. As noted above, the Company believes this power of attorney is legally enforceable but it may not be as effective as direct equity
ownership.
In addition, if the legal structure and contractual arrangements were found to be in violation of any existing PRC laws and regulations, the PRC
government could:
(cid:120) levying fines or confiscate the Group’s income;
(cid:120) revoke the Group’s business or operating licenses;
(cid:120) require the Group to discontinue, restrict or restructure its operations;
(cid:120) shut down the Group’s servers or block the Group’s websites and mobile platform;
(cid:120) restrict or prohibit the use of the Group’s financing proceeds to finance its business and operations in China; or
(cid:120) take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business
The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s business. In addition,
the imposition of any of these penalties may cause the Group to lose the right to direct the activities of Nanjing Tuniu (through its equity interest in its
subsidiaries) or the right to receive economic benefits from the Affiliated Entities. Therefore, a risk exists in that the Group would no longer be able to
consolidate Nanjing Tuniu and its subsidiaries. On February 19, 2015, the PRC Ministry of Commerce (“MOFCOM”) published the draft Foreign Investment
Law. If enacted as proposed, the Foreign Investment Law may cause the Group’s VIE to be deemed as entities with foreign investment and as a result the
Group’s VIE and subsidiaries in which the VIE has direct or indirect equity ownership could become explicitly subject to the current restrictions on foreign
investment that engaged in an industry on the negative list. If the enacted version of the foreign investment Law and the final negative list mandate further
actions, such as MOFCOM market entry clearance or certain restructuring of corporate structure and operations to be completed by companies with existing
VIE structure similar to the one described above, the Group will face substantial uncertainties as to whether these actions can be timely completed, or at all. As a
result, the Group’s operating result and financial condition may be adversely affected.
Summary financial information of the Affiliated Entities in the consolidated financial statements
As of December 31, 2015, the aggregate accumulated deficit of the Affiliated Entities was RMB1,348 million prior to intercompany elimination.
F-11
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation - continued
The following financial statement amounts and balances of the Affiliated Entities were included in the consolidated financial statements as of December
31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015:
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net
Intercompany receivables
Prepayments and other current assets
Total current assets
Non-current assets
Property and equipment, net
Intangible assets, net
Goodwill
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Accounts payable
Salary and welfare payable
Taxes payable
Advances from customers
Intercompany payable
Accrued expenses and other current liabilities
Total current liabilities
Non-current liabilities
Total liabilities
2014
RMB
As of December 31,
2015
RMB
US$ (Note 2(d))
102,356
44,030
100,000
8,645
65,474
566,731
887,236
22,600
1,975
—
14,290
38,865
926,101
373,464
66,075
2,079
638,803
52,114
87,657
1,220,192
—
1,220,192
376,883
138,997
499,402
116,669
130,945
1,402,919
2,665,815
72,582
100,125
136,569
323,403
632,679
3,298,494
1,036,226
123,071
6,668
1,223,313
1,263,100
936,526
4,588,904
39,750
4,628,654
58,181
21,457
77,094
18,011
20,214
216,573
411,530
11,205
15,457
21,083
49,925
97,670
509,200
159,966
18,999
1,029
188,847
194,989
144,575
708,405
6,136
714,541
Net revenues
Net loss
Net cash provided by/(used in) operating activities
Net cash provided by/(used in) investing activities
Net cash provided by financing activities
For the Years Ended December 31,
2013
RMB
1,937,485
(39,597)
161,148
(201,058)
—
2014
RMB
3,736,473
(128,299)
(51,446)
72,161
700
2015
RMB
US$ (Note 2(d))
7,755,914
(1,051,691)
(87,299)
(1,374,894)
1,736,720
1,197,307
(162,353)
(13,477)
(212,247)
268,103
There were no pledges or collateralization of the Affiliated Entities’ assets. Currently there is no contractual arrangement that could require the Company
to provide additional financial support to the Affiliated Entities. As the Company is conducting its business mainly through the Affiliated Entities, the Company
may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
F-12
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(b) Principles of Consolidation - continued
Under the contractual arrangements with Nanjing Tuniu and through its equity interest in its subsidiaries, the Group has the power to direct the activities
of the Affiliated Entities and direct the transfer of assets out of the Affiliated Entities. Therefore, the Group considers that there are no assets of the Affiliated
Entities that can be used only to settle their obligations. As the consolidated Affiliated Entities are each incorporated as a limited liability company under the
PRC Company Law, the creditors do not have recourse to the general credit of the Company for all of the liabilities of the consolidated Affiliated Entities.
Liquidity
The Group’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation
of liabilities during the normal course of operations. The Group incurred net losses of approximately RMB79,632, RMB447,858 and RMB1,459,379 in the
years ended December 31, 2013, 2014 and 2015, respectively. Net cash provided by / (used in) operating activities was approximately RMB116,736 and RMB
(271,102) and RMB(514,735) for the years ended December 31, 2013, 2014 and 2015, respectively. Accumulated deficit was RMB405,580, RMB869,044 and
RMB2,328,423 as of December 31, 2013, 2014 and 2015, respectively. As of December 31, 2015, the Group had net current assets and management believes
that the Group’s available cash, cash equivalents, short-term investments and cash generated from operations will be sufficient to meet working capital
requirements and capital expenditures in the ordinary course of business for the next twelve months.
(c) Use of Estimates
The preparation of the Group’s consolidated financial statements in conformity with the U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ materially
from those estimates. Significant accounting estimates reflected in the Group’s consolidated financial statements mainly include revenue recognition, estimating
useful lives and impairment for property and equipment, impairment for goodwill and other acquired intangible assets, the purchase price allocation, fair value
of noncontrolling interests and contingent considerations with respect to business combinations, losses due to committed tour reservations, the valuation
allowance for deferred tax assets, the determination of uncertain tax positions.
(d) Functional Currency and Foreign Currency Translation
The Group uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company and its subsidiaries incorporated outside of PRC is
the United States dollar (“US$”), while the functional currency of the PRC entities in the Group is RMB as determined based on ASC 830, Foreign Currency
Matters.
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates
prevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are re-measured at the balance sheet date exchange rate. The
resulting exchange differences are included in the consolidated statements of comprehensive loss as foreign exchange gains / losses.
Assets and liabilities of the Company and its subsidiaries incorporated outside of PRC are translated into RMB at fiscal year-end exchange rates. Income
and expense items are translated at average exchange rates prevailing during the respective fiscal years. Translation adjustments arising from these are reported
as foreign currency translation adjustments and are shown as a component of accumulated other comprehensive income or loss in the consolidated statement of
changes in shareholders’ equity/(deficit).
The unaudited United States dollar amounts disclosed in the accompanying financial statements are presented solely for the convenience of the readers.
Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the rate of US$1.00 = RMB 6.4778 on December 31, 2015, as
set forth in H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into
US$ at that rate on December 31, 2015, or at any other rate.
F-13
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(e) Fair Value Measurement
The Group defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value,
the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when
pricing the asset or liability.
The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair
value measurement. The three levels of inputs may be used to measure fair value include:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with
insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can
be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the assets or liabilities.
The Group’s financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, advances from
customers, and certain accrued liabilities and other current liabilities. The carrying values of these financial instruments approximated their fair values due to the
short-term maturity of these instruments.
(f) Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand and demand deposits placed with banks, other financial institutions and Alipay, a third party payment
processor, which are unrestricted as to withdrawal or use.
(g) Restricted Cash
Restricted cash represents cash that cannot be withdrawn without the permission of third parties. The Group’s restricted cash mainly represents (i) cash
deposits required by tourism administration departments as a pledge to secure travelers’ rights and interests, (ii) cash deposits required by China Insurance
Regulatory Commission for engaging in insurance agency or brokering activities, (iii) the secured deposits held in designated bank accounts for issuance of
bank acceptance and letter of guarantee, and required by the Group’s business partners.
(h) Short-term Investments
Short-term investments are comprised of investments in financial products issued by banks or other financial institutions, which contain a fixed or variable
interest rate and with original maturities between three months and one year. Such investments are generally not permitted to be redeemed early or are subject to
penalties for redemption prior to maturity. Given the short-term nature, the carrying value of short-term investments approximates their fair value. There was no
other-than-temporary impairment of short-term investments for the years ended December 31, 2013, 2014 and 2015.
F-14
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(i) Accounts Receivable, net
The Group’s accounts receivable mainly consist of amounts due from the corporate customers, travel agents, insurance companies and travel boards or
bureaus, which are carried at the original invoice amount less an allowance for doubtful accounts. The Group reviews the accounts receivable on a periodic basis
and makes allowances when there is doubt as to the collectability of individual balances. The Group evaluates the collectability of accounts receivable
considering many factors including reviewing accounts receivable balances, historical bad debt rates, payment patterns, counterparties’ credit worthiness and
financial conditions, and industry trend analysis. No allowance for doubtful accounts was provided as of December 31, 2014 and 2015 as the Group believes
that it is probable the accounts receivable will be fully collected.
(j) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and impairment if applicable. Property and equipment are depreciated over the
estimated useful lives on a straight-line basis. The estimated useful lives are as follows:
Category
Computers and equipment
Buildings
Furniture and fixtures
Vehicles
Software
Leasehold improvements
Estimated useful life
3 years
16 - 17 years
3 - 5 years
3 - 5 years
5 years
Over the shorter of the lease term or the estimated useful life of
the asset 1 – 9 years
Construction in progress represents leasehold improvements under construction or being installed and is stated at cost. Cost comprises original cost of
property and equipment, installation, construction and other direct costs. Construction in progress is transferred to leasehold improvements and depreciation
commences when the asset is ready for its intended use.
Gain or loss on the disposal of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and
is recognized in the consolidated statements of comprehensive loss.
(k) Capitalized Software Development Cost
The Group has capitalized certain direct development costs associated with internal-used software in accordance with ASC 350-40, Internal-use software,
which requires the capitalization of costs relating to certain activities of developing internal-use software that occur during the application development stage.
Costs capitalized mainly include payroll and payroll-related costs for employees who devoted time to the internal-use software projects during the application
development stage. Capitalized internal-use software costs are stated at cost less accumulated amortization and the amount is included in “property and
equipment, net” on the consolidated balance sheets, with an estimated useful life of five years. Software development cost capitalized amounted to RMB980,
RMB6,837 and RMB7,572 for the years ended December 31, 2013, 2014 and 2015, respectively. Costs capitalized mainly include payroll and payroll-related
costs for employees who are directly associated with and who devoted time to the internal-use software projects during the application development stage. The
amortization expense for capitalized software costs amounted to RMB74, RMB727 and RMB2,212 for the years ended December 31, 2013, 2014 and 2015,
respectively. The unamortized amount of capitalized internal use software development costs was RMB12,376 as of December 31, 2015.
F-15
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(l) Business combination
U.S. GAAP requires that all business combinations not involving entities or businesses under common control be accounted for under the purchase
method. The Group has adopted ASC 805 “Business Combinations”, and the cost of an acquisition is measured as the aggregate of the fair values at the date of
exchange of the assets given, liabilities incurred and equity instruments issued. The transaction costs directly attributable to the acquisition are expensed as
incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date,
irrespective of the extent of any noncontrolling interests. The excess of the (i) the total of cost of acquisition, fair value of the noncontrolling interests and
acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as
goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated
statements of operations and comprehensive income.
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation
methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, the number of years on
which to base the cash flow projections, as well as the assumptions and estimates used to forecast the future cash inflows and outflows. Management determines
discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the
expected life of products and forecasted life cycle and forecasted cash flows over that period. Although management believes that the assumptions applied in the
determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference
could be material.
A noncontrolling interest is recognized to reflect the portion of a subsidiary’s equity which is not attributable, directly or indirectly, to the Company.
Consolidated net income on the consolidated statements of operations and comprehensive income includes the net income (loss) attributable to noncontrolling
interests when applicable. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in the
Company’s consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in the
consolidated statements of cash flows when applicable.
(m) Intangible Assets
Intangible assets purchased are recognized and measured at cost upon acquisition and intangible assets arising from acquisitions of subsidiaries are
recognized and measured at fair value upon acquisition. The Company’s purchased intangible assets include computer software, which are amortized on a
straight-line basis over their estimated useful lives 3 years. Separately intangible assets arising from acquisitions consist of trade names, customer relationship,
software, non-compete agreements, travel licenses, insurance agency license and business cooperation agreement with JD.com Inc., which are amortized on a
straight-line basis over their estimated useful lives of 3.5 to 20 years. The estimated life of intangible assets subject to amortization is reassessed if
circumstances occur that indicate the life has changed. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. No impairment of intangible assets was recognized for the years ended December 31, 2013, 2014
and 2015.
F-16
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(n) Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable assets and liabilities acquired in business combinations. Goodwill is
not amortized, but tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.
The Group adopted Accounting Standards Update (“ASU”) 2011-08, Intangibles—Goodwill and Other (Topic 350). This accounting standard gives the
Group an option to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying
amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, goodwill is then tested following a two-step process. The first step compares the fair value of each reporting unit
to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the
second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to
the carrying amount of a reporting unit’s goodwill. The fair value of each reporting unit is determined by the Group using the expected present value of future
cash flows. The key assumptions used in the calculation include the long-term growth rates of revenue and gross margin, working-capital requirements and
discount rates. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination, with the allocation of the assessed
fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts
assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill
impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value
of goodwill over the implied fair value of goodwill. Management performs its annual goodwill impairment test on October 1.
No impairment loss was recognized for the year ended December 31, 2015.
(o) Impairment of long-lived assets
The Group evaluates its long-lived assets and finite lived intangibles for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When these events occur, the Group measures impairment by comparing the carrying amount of the assets
to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash
flows is less than the carrying amount of the assets, the Group recognizes an impairment loss equal to the difference between the carrying amount and fair value
of these assets. No impairment of long-lived assets was recognized during the years ended December 31, 2013, 2014 and 2015.
(p) Advances from Customers
Customers pay in advance to purchase travel services. Cash proceeds received from customers are initially recorded as advances from customers and are
recognized as revenues when revenue recognition criteria are met.
F-17
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(q) Revenue Recognition
The Group’s revenue is primarily derived from sales of organized tours and self-guided tours, and other service fees. Revenue is recognized when the
following criteria are met: persuasive evidence of an arrangement exists, the sales price is fixed or determinable, service has been provided, and collectability is
reasonably assured in accordance with ASC 605, Revenue Recognition.
Organized tours: Substantially all of revenue from organized tours is recognized on a gross basis, as the Group is the primary obligor in the arrangement
and bears the risks and rewards, including the customer’s acceptance of services delivered. Such commitments are made in the contract the Group enters with its
customers. Even though the Group does not generally assume the substantive inventory risk before customers place an order, the Group is the party retained by
and paid by its customers, and the Group is responsible for (and solely authorized to) refunding customers their payments in situations of customer disputes.
Further, the Group independently selects travel service suppliers, and determines the prices charged to customers and paid to its travel suppliers. Revenue from
organized tours is recognized when the tours end as service rendering is only considered completed upon conclusion of the entire organized tour.
Self-guided tours: Revenue from self-guided tours is recognized on a net basis, representing the difference between what the Group receives from its
customers and the amounts due to its travel suppliers. In the self-guided tour arrangements, the Group generally does not assume substantive inventory risk, has
limited involvement in determining the service, and provides limited additional services to customers. Suppliers are responsible for all aspects of providing the
air transportation and hotel accommodation, and other travel-related services. As such, the Group concludes that it is an agent for the travel service providers in
these transactions and revenues are reported on a net basis. Revenue from self-guided tours is recognized when the tours end as commissions are not earned
until this time according to the contractual arrangements the Group entered into with its travel suppliers.
Other revenues: Other revenues primarily comprise revenues generated from service fees received from insurance companies, other travel-related
services, such as sales of tourist attraction tickets and visa processing services, fees for advertising services that the Group provide primarily to domestic and
foreign tourism boards and bureaus, commission fees for hotel reservation and air-ticketing and service fees for financial services. Revenue is recognized when
the services are rendered or when the tickets are issued.
The Group does not recognize revenue if customer refunds are warranted due to customer satisfaction issues or other reasons, which is generally known at
the end of each tour when revenues are recognized. In the event of tour cancellation by customers, the liability associated with prepayments received from
customers remains on the Group’s consolidated balance sheets until refunds are issued.
The Group commenced the financial services in 2015. Certain domestic financial assets exchanges (the "Exchange") and trust companies offered the yield
enhancement products through the Group’s online platform and the Group charged these companies for the commission fees which were recorded as other
revenue upon the delivery of service. For the year ended December 31, 2015, the commission revenue was immaterial.
In addition, the Group purchased the yield enhancement products with maturities ranged from three months to two years from the Exchanges and trust
companies and split all of the products into new yield enhancement products with lower yield rate and shorter maturities within one year, which were offered to
the individual investors through the Group’s online platform. As of December 31, 2015, RMB407,487 of yield enhancement products purchased by the Group
with maturities within one year was recorded as other current assets (see Note 6), and RMB300,267 with the maturities over one year was recorded as other non-
current assets (see Note 10). The interest revenue of RMB8,740 was recorded as other revenue for the year ended December 31, 2015. As of December 31,
2015, RMB589,151 of yield enhancement products held by the individual investors with maturities within one year was recorded as accrued expenses and other
current liabilities (see Note 11). The interest cost of RMB8,082 was recorded as cost of revenue for the year ended December 31, 2015.
F-18
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(q) Revenue Recognition - continued
Customer incentives
From time to time customers are offered coupons, travel vouchers, membership points, or cash rewards as customer incentives. The Group accounts for
these customer incentives in accordance with ASC 605-50, Customer Payments and Incentives. For coupons and travel vouchers offered where prior purchase is
not required, the Group accounts for them as a reduction of revenue when revenue is recognized. The Group assessed coupons and travel vouchers offered to
customers as part of a current purchase that give customers a right, but do not obligate customers to make future purchases, and concluded the discounts offered
are insignificant; as such, no deferral of revenue is considered necessary.
For membership points earned by customers as part of the customer reward program which provides travel awards upon point redemption, the Group
estimates the incremental costs associated with the Group’s future obligation to its customers, and records them as sales and marketing expense in the
consolidated statements of comprehensive loss. Unredeemed membership points are recorded in other current liabilities in the consolidated balance sheets. Cash
rewards earned by customers are recorded as a reduction to revenue, with corresponding unclaimed amount recorded in other current liabilities. The Group
estimate liabilities under the customer loyalty program based on accumulated membership points and cash rewards, and the estimate of probability of
redemption in accordance with the historical redemption pattern. The actual expenditure may differ from the estimated liability recorded. Prior to April 2015,
the Group recorded estimated liabilities for all points earned by customers as the Group did not have sufficient historical information to determine point
forfeitures or breakage. The Group, with accumulated knowledge on membership points and cash rewards redemption and expiration, began to apply historical
redemption rates in estimating the costs of points earned from May 2015 onwards. As of December 31, 2014 and 2015, liabilities recorded related to
membership points and cash rewards are RMB14,764 and RMB34,633, respectively.
Business and related taxes
The Group is subject to business and related taxes on services provided in the PRC at applicable rates, which are recorded as a reduction of revenues.
(r) Cost of Revenues
Cost of revenues mainly consists of costs to suppliers of organized tours, and salaries and other compensation-related expenses related to the Group’s tour
advisors, customer services representatives, and other personnel related to tour transactions, and other expenses directly attributable to the Group’s principal
operations, primarily including payment processing fees, telecommunication expenses, rental and depreciation expense.
Committed tour reservations
In order to secure availabilities of organized tours and self-guided tours during peak seasons such as holiday periods, the Group may enter into certain
contractual commitments with suppliers to reserve tours for selected destinations. The Group is required to pay a deposit to ensure tour availabilities, and such
prepayment is record in prepayments and other current assets on the consolidated balance sheets. Some of these contractual commitments are non-cancellable,
and to the extent the reserved tours are not sold to customers, the Group would be liable to pay suppliers a pre-defined or negotiated penalty, thereby assuming
inventory risks. Management estimates losses of the committed tour reservations on a periodic basis based on contractual terms and historical experience, and
record such losses in the period the loss is considered probable. For the years ended December 31, 2013, 2014 and 2015, losses recorded in “cost of revenues” in
the consolidated statements of comprehensive loss amounted to RMB6,682, RMB4,134 and RMB17,780, respectively.
F-19
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(s) Advertising Expenses
Advertising expenses, which primarily consist of online marketing expense and brand marketing expenses through various forms of media, are recorded in
sales and marketing expenses as incurred. Advertising expense were RMB103,142, RMB379,205 and RMB899,015 for the years ended December 31, 2013,
2014 and 2015, respectively.
(t) Research and Product Development Expenses
Research and product development expenses include salaries and other compensation-related expenses to the Group’s research and product development
personnel, as well as office rental, depreciation and related expenses and travel-related expenses for the Group’s research and product development team. The
Group recognizes software development costs in accordance with ASC 350-40 “Software—internal use software”. The Group expenses all costs that are
incurred in connection with the planning and implementation phases of development, and costs that are associated with repair or maintenance of the existing
websites or software for internal use. Certain costs associated with developing internal-use software are capitalized when such costs are incurred within the
application development stage of software development (see Note 2(k)).
(u) Leases
A lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified as an operating lease. All leases of the
Group are currently classified as operating leases. When a lease contains rent holidays or requires fixed escalations of the minimum lease payments, the Group
records the total rental expense on a straight-line basis over the lease term and the difference between the straight-line rental expense and cash payment under
the lease is recorded as deferred rent liabilities. As of December 31, 2014 and 2015, deferred rent of RMB4,244 and RMB16,741, were recorded as current
liabilities and RMB22,278 and RMB18,035 were recorded as non-current liabilities, respectively.
(v) Share-based Compensation
The Company applies ASC 718, “Compensation — Stock Compensation” to account for its share-based compensation program. In accordance with the
guidance, the Company determines whether a share-based award should be classified and accounted for as a liability award or equity award. All grants of share-
based awards to employees classified as equity awards are recognized in the financial statements based on their grant date fair values which are calculated using
the binominal option pricing model. Share-based compensation expenses are recorded net of an estimated forfeiture rate over the service period using the
straight-line method.
The Company’s 2008 Incentive Compensation Plan allows the plan administrator to grant options and restricted shares to the Company’s employees,
directors, and consultants. The plan administrator is the Company’s board of directors or a committee appointed and determined by the board. The board may
also authorize one or more officers of the Company to grant awards under the plan. Under the 2008 Incentive Compensation Plan, options granted to employees
vest upon satisfaction of a service condition, which is generally satisfied over four years. Additionally, the incentive plan provides an exercisability clause
where employees can only exercise vested options upon the occurrence of the following events: (i) after the Company’s ordinary shares has become a listed
security, (ii) in connection with or after a triggering event (defined as a sale, transfer, or disposition of all or substantially all of the Company’s assets, or a
merger, consolidation, or other business combination transaction), or (iii) if the employee obtains all necessary governmental approvals and consents required.
Options for which the service condition has been satisfied are forfeited should employment terminate three months prior to the occurrence of an exercisable
event, which substantially creates a performance condition. This performance condition was met upon completion of the Company’s initial public offering, and
the associated share-based compensation expense for awards vested as of that date were recognized on May 9, 2014.
In April 2014, the Company adopted the 2014 Share Incentive Plan, which contains no such exercisability clause. For detail of the 2014 Share Incentive
Plan, please refer to Note 14 of the consolidated financial statements.
F-20
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(v) Share-based Compensation - continued
The Group recognized share-based compensation expense of RMB65,143 in the year ended December 31, 2015, which was classified as follows:
Cost of revenue
Research and product development
Sales and marketing
General and administrative
Total
(w) Income Taxes
For the Years Ended December 31,
2013
RMB
2014
RMB
2015
RMB
US$ (Note 2(d))
—
—
—
—
—
800
1,972
857
35,544
39,173
784
3,538
1,136
59,685
65,143
121
546
175
9,214
10,056
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items which are not
assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income taxes are provided using
the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory
rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base
of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in the
interim condensed consolidated statements of comprehensive loss in the period of change. A valuation allowance is provided to reduce the amount of deferred
tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.
Uncertain tax positions
The guidance prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. Guidance also provides for the derecognition of income tax assets and liabilities, classification of current and deferred income tax assets
and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Significant judgment is required in evaluating the Group’s uncertain tax positions and determining its provision for income taxes. As of December 31, 2014 and
2015, the Group did not have any significant unrecognized uncertain tax positions or any interest or penalties associated with tax positions.
In order to assess uncertain tax positions, the Group applies a more likely than not threshold and a two-step approach for the tax position measurement and
financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals or litigation processes, if
any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
(x) Employee Benefits
Full-time employees of the Group in the PRC are entitled to welfare benefits including pension, work-related injury benefits, maternity insurance, medical
insurance, unemployment benefit and housing fund plans through a PRC government-mandated defined contribution plan. Chinese labor regulations require that
the Group makes contributions to the government for these benefits based on certain percentages of employees’ salaries, up to a maximum amount specified by
the local government. The Group has no legal obligation for the benefits beyond the contributions. The Group recorded employee benefit expenses of
RMB24,058, RMB50,617 and RMB131,291 for the years ended December 31, 2013, 2014 and 2015, respectively.
F-21
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(y) Government Subsidies
Government subsidies are cash subsidies received by the Group’s entities in the PRC from provincial and local government authorities. The government
subsidies are granted from time to time at the discretion of the relevant government authorities. These subsidies are granted for general corporate purposes and
to support the Group’s ongoing operations in the region. Cash subsidies are recorded in other operating income on the consolidated statements of comprehensive
loss when received and when all conditions for their receipt have been satisfied. The Group recognized government subsidies of RMB1,689, RMB6,902 and
RMB12,175 in the years ended December 31, 2013, 2014 and 2015, respectively.
(z) Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between ordinary shares and
other participating securities based on their participating rights. Net loss is not allocated to other participating securities if based on their contractual terms they
are not obligated to share in the losses. Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to ordinary shareholders by the
weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of shares
issuable upon the conversion of the preferred shares using the if-converted method, and shares issuable upon the exercise of share options using the treasury
stock method. Ordinary equivalent shares are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be
anti-dilutive. The preferred shares have been converted into ordinary shares upon the completion of the Group’s initial public offering (“IPO”) in May 2014.
Except for voting rights, Class A and Class B shares have all the same rights and therefore the Group has elected not to use the two-class method.
(aa) Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of the Group during a period arising from transactions and other events and circumstances
excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income or loss is reported in the
consolidated statements of comprehensive loss. Accumulated other comprehensive income (loss), as presented on the accompanying consolidated balance
sheets, consists of accumulated foreign currency translation adjustments.
(ab) Segment Reporting
In accordance with ASC 280, Segment Reporting, the Group’s chief operating decision maker, the Chief Executive Officer, reviews the consolidated
results when making decisions about allocating resources and assessing performance of the Group as a whole and hence, the Group has only one reportable
segment.
The Group does not distinguish between markets or segments for the purpose of internal reporting. The Group’s long-lived assets are substantially all
located in the PRC and substantially all the Group’s revenues are derived from within the PRC, therefore, no geographical segments are presented.
F-22
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(ac) Recently Issued Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern” (“ASU 2014-15”)., which provides
guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires
management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the date on which the financial statements are available to be issued, when applicable). Further, an entity
must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” The ASU is effective for annual periods
ending after December 15, 2016, and interim periods thereafter; early adoption is permitted. The Group is in the process of evaluating the impact of adopting
this guidance.
In January 2015, the FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items” (“ASU 2015-01”) to eliminate from U.S.
GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the ASU,
an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income
statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The
ASU is effective for annual and interim periods beginning after December 15, 2015 and early adoption is permitted. This guidance will not have material impact
on the Group’s financial position, results of operations or cash flows.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). ASU
2015-02 focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities.
The ASU simplifies consolidation accounting by reducing the number of consolidation models from four to two. In addition, the new standard simplifies the
FASB Accounting Standards Codification and improves current guidance by: (i) placing more emphasis on risk of loss when determining a controlling financial
interest; (ii) reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE; and (iii) changing
consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. The ASU is effective
for annual and interim periods beginning after December 15, 2015, and early adoption is permitted, including adoption in an interim period. The Group is in the
process of evaluating the impact of adopting this guidance.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which amends the existing
accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic
606)” (“ASU 2015-14”): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. Therefore, the effective date of ASU No,
2014-09 for public business entities is for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting
period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that
reporting period. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. The Group is in the process of
evaluating the impact of adopting this guidance.
F-23
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(ac) Recently Issued Accounting Pronouncements - continued
In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period
Adjustments” (“ASU 2015-16”). This ASU requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement
period in the reporting period in which the adjustment amounts are determined. Prior to the issuance of the ASU, entities were required to retrospectively apply
adjustments made to provisional amounts recognized in a business combination. The ASU is effective for annual and interim periods beginning after December
15, 2015, and early adoption is permitted. The Group has early adopted ASU 2015-16 in 2015.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”(“ASU 2015-17”),
which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The
ASU is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. The Group early adopted the new standard
on a retrospective basis as of December 31, 2015. The early adoption has no impact on the consolidated financial statements as there was a fully valuation
allowance on the deferred tax assets.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): “Recognition and Measurement of Financial
Assets and Financial Liabilities” (“ASU 2016-01”) which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments.
Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to the classification and measurement of investments
in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure
requirements associated with the fair value of financial instruments. The ASU is effective for annual and interim periods beginning after December 15, 2017.
The Group is in the process of evaluating the impact of adopting this guidance.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”(“ASU 2016-02”), which requires lessees to recognize assets and liabilities
for all leases with lease terms of more than 12 months on the balance sheet. Under the new guidance, the recognition, measurement, and presentation of
expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. The ASU is effective for annual and
interim periods beginning after December 15, 2018 and early adoption is permitted on a modified retrospective basis. The Group is in the process of evaluating
the impact of adopting this guidance.
3. Risks and Concentration
(a) Credit and Concentration Risks
The Group’s credit risk arises from cash and cash equivalents, restricted cash, short-term investments, prepayments and other current assets, and accounts
receivables. The maximum exposure of such assets to credit risk is their carrying amounts as of the balance sheet dates.
The Group expects that there is no significant credit risk associated with the cash and cash equivalents and short-term investments which are held by
reputable financial institutions in the jurisdictions where the Company, its subsidiaries and the Affiliated Entities are located. The Group believes that it is not
exposed to unusual risks as these financial institutions have high credit quality.
The Group has no significant concentrations of credit risk with respect to its customers, as customers usually prepay for travel services. Accounts
receivable are typically unsecured and are primarily derived from revenue earned from corporate customers, travel agents, insurance companies and travel
boards or bureaus. The risk with respect to accounts receivable is mitigated by credit evaluations performed on the corporate customers, travel agents and
insurance companies and ongoing monitoring processes on outstanding balances. No individual customer accounted for more than 10% of net revenues in the
years ended December 31, 2013, 2014 and 2015.
F-24
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
3. Risks and Concentration - continued
(a) Credit and Concentration Risks - continued
The following table summarized customers with greater than 10% of the accounts receivables:
Customer A
As of December 31,
2014
2015
26.0%
13.3%
During the year ended December 31, 2015, the Group has purchased financial products which include yield enhancement products issued by domestic
Financial Assets Exchanges and Trust companies. The Group has set up a risk evaluation system on the issuers of credit quality, ultimate borrowers of asset
management schemes, and conducts collect ability assessment of the financial assets on timely basis. As of December 31, 2015, the Group believes the financial
assets are financially sound based on public available information and the assessment and does not foresee substantial credit risk with respect to these financial
products.
(b) Foreign Currency Risk
The Group’s operating transactions and its assets and liabilities are mainly denominated in RMB. RMB is not freely convertible into foreign currencies.
The value of RMB is subject to changes influenced by central government policies, and international economic and political developments. In the PRC, certain
foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China
(the “PBOC”). Remittances in currencies other than RMB by the Group in China must be processed through the PBOC or other China foreign exchange
regulatory bodies which require certain supporting documentation in order to effect the remittance.
F-25
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
4. Business acquisition
Travel agencies
During the year ended December 31, 2015, the Group acquired the 90%, 100%, 75.02% and 80% of equity interests of the four offline travel agencies,
respectively. The Group gained access to the expanding Taiwan tours market and improved the capability in the direct procurement of products with these
acquisitions. The total purchase price of RMB117,997 included cash consideration of RMB102,662 and RMB15,335, the fair value of contingent cash
consideration to be made based on the achievement of certain revenue and profit target over the next three to four years. The fair value of the contingent cash
consideration was estimated using a probability-weighted scenario analysis method. Key assumption included probabilities assigned to each scenario and a
discount rate. As of December 31, 2015, the total unpaid consideration was amounted to RMB39,471. The business acquisitions were accounted for under
purchase accounting. The following is the summary of the fair values of the assets acquired and liabilities assumed:
Net liabilities (including the cash acquired of RMB24 million)
Travel licenses
Customer relationship
Trade names
Software
Non-compete agreement
Goodwill
Deferred tax liability
Noncontrolling interest
Total considerations
Amount
Estimated useful lives
20 years
14.25-14.5 years
7-14 years
5 years
3.5-5.25 years
(57,032)
25,100
13,596
39,619
3,013
1,782
132,819
(20,778)
(20,122)
117,997
The Group measured the fair value of the trade names and travel licenses under the relief-from-royalty method. Under the methodology, fair value is
calculated as the discounted cash flow savings accruing to the owner for not having to pay the royalty. Key assumptions included expected revenue attributable
to the assets, royalty rates, discount rate and estimated asset lives. Customer relationships were valued using the excess-earnings method, which measures the
present value of the projected cash flows that are expected to be generated by the existing intangible asset after deduction of cash flows attributable to other
contributory assets to realize the projected earnings attributable to the intangible asset. Key assumptions included discounted cash flow analyses, for other
contributory assets, discount rate, remaining useful life, tax amortization benefit and customer attrition rates. The Group measured the fair value of non-compete
agreements based on incremental discounted cash flow analyses computed with and without the non-compete terms as described in share purchase agreement
and the probability that such competition exists. The Group measured the fair value of the software under the replacement cost method.
A preliminary allocation of the purchase price of two offline travel agencies, which were acquired on July 1, 2015 and October 1, 2015, respectively, to
the assets acquired and liabilities assumed was made based on available information and incorporated with management’s current estimates, and is subject to
revision as additional information about the fair value of individual assets and liabilities becomes available. The Group is in the process of finalizing the fair
value of the current assets and current liabilities, and the amount of purchase price allocable to goodwill be updated accordingly.
During the year ended December 31, 2015, the Group acquired the remaining 10% equity interest of one of travel agencies with the consideration of
RMB1,496, which was treated as equity acquisition and the difference between the purchase consideration and the related carrying value of the noncontrolling
interests of RMB683 was recorded as a reduction of additional paid-in capital during the year ended December 31, 2015.
F-26
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
4. Business acquisition - continued
Other acquisition
In July 2015, the Group acquired 100% equity interests of in a technology company of focusing on air ticketing platform development. The total
consideration was RMB8,645. As of December 31, 2015, the total unpaid consideration was amounted to RMB 2,645. The business acquisitions were accounted
for under purchase accounting. The following is the summary of the fair values of the assets acquired and liabilities assumed:
Net liabilities
Software
Non-compete agreement
Goodwill
Deferred tax liability
Total considerations
Amount
Estimated useful lives
(355)
5,960
1,040
3,750
(1,750)
8,645
6 years
6 years
Pro forma results of operations for the acquisitions described above have not been presented because they are not material to the consolidated income
statements, either individually or in aggregate.
5. Transaction with JD.com, Inc.
On May 8, 2015, the Company entered into a share subscription agreement with Fabulous Jade Global Limited, an affiliate of JD.com, Inc., and a Business
Cooperation Agreement (“BCA”) with JD. Com, Inc. (“JD”) for a period of five years. Pursuant to these agreements, the Company issued 65,625,000 Class A
ordinary shares for a cash consideration of RMB1,528.2 million (US$250 million) and the business resource contributed by JD. According to BCA, the business
resource includes the exclusive rights to operate the leisure travel channel for both JD’s website and mobile application and JD's preferred partnership for hotel
and air ticket reservation service, the internet traffic support and marketing support for the leisure travel channel for a period of five years started from August
2015.
The acquisition of BCA is considered as assets acquisition and the intangible assets acquired include the exclusive operation right of leisure travel channel,
preferred partnership of hotel and air tickets reservation service, traffic and marketing supports. The Group estimated the fair value of exclusive operation right
and preferred partnership using a form of the income approach known as excess earning method. The key assumption includes expected revenue attributable to
assets, margin discount rate and the remaining useful life. The Group estimated the fair value of internet traffic support and marketing support using a form of
income approach known as operating cost saving method. Key assumption includes the market price of the services to be provided, the volume of the services to
be provided, discount rate and the remaining useful life. The Group made estimates and judgments in determining the fair value of the assets with assistance
from an independent valuation firm.
The summary of the fair value about acquired intangible assets is as follows:
Exclusive operation right of leisure travel channel
Preferred partnership of hotel and air ticket reservation service
Internet traffic support
Marketing support
Total consideration
Amount
405,406
1,431
139,358
114,020
660,215
Estimated useful lives
5 years
5 years
5 years
5 years
F-27
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
6. Prepayments and other current assets
The following is a summary of prepayments and other current assets:
Prepayments to suppliers
Interest income receivable
Prepayment for advertising expenses
Yield enhancement products from Exchange and trust companies
Others
Total
7. Property and equipment, net
The following is a summary of property and equipment, net:
Computers and equipment
Leasehold improvements
Buildings
Furniture and fixtures
Vehicles
Software
Subtotal
Less: Accumulated depreciation
Property and equipment subject to depreciation
Construction in progress
Total
2014
RMB
498,298
6,510
53,664
—
16,825
575,297
As of December 31,
2015
RMB
1,095,918
26,376
92,339
407,487
77,348
1,699,468
US$ (Note 2(d))
169,181
4,072
14,255
62,905
11,940
262,353
2014
RMB
As of December 31,
2015
RMB
US$ (Note 2(d))
43,961
43,684
—
6,343
—
11,920
105,908
(36,542)
69,366
2,944
72,310
89,127
71,800
2,578
15,479
156
23,850
202,990
(63,287)
139,703
5,487
145,190
13,758
11,084
398
2,390
24
3,682
31,336
(9,770)
21,566
848
22,414
Depreciation expenses for the years ended December 31, 2013, 2014 and 2015 were RMB8,764, RMB10,869 and RMB28,041, respectively.
F-28
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
8. Intangible assets, net
Intangible assets, net, consist of the following:
Travel license
Insurance agency license
Software
Trade names
Business Cooperation Agreements
Customer relationship
Non-compete agreements
Subtotal
Less: Accumulated amortization
Total
2014
RMB
As of December 31,
2015
RMB
4,313
—
1,945
—
—
—
—
6,258
(3,183)
3,075
29,206
11,711
19,164
39,619
660,215
13,596
2,822
776,333
(60,785)
715,548
US$ (Note 2(d))
4,509
1,807
2,959
6,116
101,920
2,099
436
119,846
(9,384)
110,462
During the year 2015, the Group acquired an insurance agency for the total consideration of RMB58,720 to acquire the insurance agency license. The
insurance agency was a dormant company and was not qualified as a business as it had no input or process to create output. The Group accounted it as assets
acquisition and the difference between the cash consideration and net assets of the insurance agency is recorded as insurance agency license and amortized over
the 20 years on a straight line basis.
Amortization expenses for intangible assets were RMB482, RMB984 and RMB57,810 for the years ended December 31, 2013, 2014 and 2015.
The annual estimated amortization expense for the above intangible assets for the following years is as follows:
Years Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
Amortization for Intangible Assets
RMB
US$ (Note 2(d))
142,280
141,355
141,259
140,851
87,336
62,467
715,548
21,964
21,821
21,807
21,744
13,482
9,644
110,462
F-29
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
9. Goodwill
The changes in the carrying amount of goodwill for the years ended December 2014 and 2015 were as follows:
Balance at the beginning of year
Increase in goodwill related to acquisitions
Accumulated impairment loss
Balance at the end of year
10. Other non-current assets
Other non-current assets consist of the following:
Prepayment to suppliers - HNA
Yield enhancement products from Exchange and trust companies
Other long term assets
Balance at the end of year
2014
RMB
As of December 31,
2015
RMB
US$ (Note 2(d))
—
—
—
—
—
136,569
—
136,569
—
21,083
—
21,083
2014
RMB
—
—
15,368
15,368
As of December 31,
2015
RMB
US$ (Note 2(d))
324,680
300,267
24,534
649,481
50,123
46,353
3,785
100,261
HNA Tourism Holdings Group Co., Ltd. (“HNA”) agreed to provide the Group with access to its premium airlines and hotels resources at a preferential
rate, under fair competition market rules, and the Group undertook to acquire no less than US$100 million (RMB649.4 million) in products and services sourced
from HNA over the next two years. The prepayments to suppliers were disclosed as prepayments and other current assets US$50 million (RMB324.7 million)
and other non-current assets US$50 million (RMB 324.7 million) according to the service period.
F-30
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
11. Accrued expenses and other current liabilities
The following is a summary of accrued expenses and other current liabilities:
Deposits from customers
Deposit from HNA
Payable for business acquisition
Accrued liabilities related to customers incentive program
Accrued professional service fees
Accrued advertising expenses
Amount due to the individual investors of yield enhancement products
Notes payable
Advanced payment from banks
Others
Total
2014
RMB
As of December 31,
2015
RMB
US$ (Note 2(d))
27,807
—
—
14,764
18,361
12,455
—
—
11,036
25,437
109,860
31,269
649,360
26,781
34,633
12,373
56,293
589,151
70,000
21,575
123,998
1,615,433
4,827
100,244
4,134
5,346
1,910
8,690
90,949
10,806
3,331
19,143
249,380
Deposits from customers represent cash paid to the Group as a deposit for overseas tours, and such amount is refundable upon completion of the tours.
HNA Tourism Holdings Group Co., Ltd. (“HNA”) provided RMB649 million (US$100 million) as the guarantee to fulfil of the ordinary shares
subscription agreement signed on November 20, 2015. The amount was refunded in January 2016 upon the closing of the transaction.
Advanced payment from banks represent cash received by the Group for promotional and marking campaigns. Banks participating in these campaigns
would reimburse the Group for tours sold to their credit card holders at a specified discount.
12. Income Taxes
The Company is registered in the Cayman Islands. The Company generated substantially all of its income (loss) from its PRC operations for the years
ended December 31, 2013, 2014 and 2015.
Cayman Islands (“Cayman”)
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to
shareholders, no Cayman Islands withholding tax will be imposed.
Hong Kong
Entities incorporated in Hong Kong are subject to Hong Kong profits tax at a rate of 16.5% since January 1, 2010. The operations in Hong Kong have
incurred net accumulated operating losses for income tax purposes.
PRC
On March 16, 2007, the National People’s Congress of the PRC enacted an Enterprise Income Tax Law (“EIT Law”), under which Foreign Investment
Enterprises (“FIEs”) and domestic companies would be subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1, 2008.
F-31
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
12. Income Taxes – continued
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located
in the PRC be treated as a resident Enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income.
The implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where the exercising, in substance, of the
overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located.”
The EIT Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company outside of China, if
such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have
no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of
incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company incorporated, does not
have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of
Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by a FIE in China to its immediate holding company in Hong Kong will be
subject to withholding tax at a rate of no more than 5% if the immediate holding company in Hong Kong owns directly at least 25% of the shares of the FIE and
could be recognized as a Beneficial Owner of the dividend from PRC tax perspective.
Nanjing Tuniu obtained in 2010 its HNTE certificate with a valid period of three years and successfully renewed such certificate in December 2013 for
additional three years. Therefore, Nanjing Tuniu is eligible to enjoy a preferential tax rate of 15% from 2013 to 2015 to the extent it has taxable income under
the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant EIT filing procedures with the relevant tax authority. Nanjing Tuniu
also obtained a software company certificate in 2012. Pursuant to such certificate, Nanjing Tuniu qualifies for a tax holiday during which it is entitled to an
exemption from enterprise income tax for two years commencing from its first profit-making year of operation and a 50% reduction of enterprise income tax for
the following three years. Nanjing Tuniu entered into the first tax profitable year for the year ended December 31, 2014.
A reconciliation between the effective income tax rate and the PRC statutory income tax rate is as follows:
PRC Statutory income tax rates
Change in valuation allowance
Permanent book – tax difference
Difference in EIT rates of certain subsidiaries
Effect of tax holiday
Total
The aggregate amount and per share effect of the tax holidays are as follows:
For Years Ended December 31,
2014
%
2015
%
2013
%
25.0
(20.1)
(4.9)
0.0
—
0.0
25.0
(22.4)
(12.1)
0.0
9.5
0.0
25.0
(22.5)
(0.1)
(3.1)
0.7
0.0
Aggregate amount
Basic net loss per share effect
Diluted net loss per share effect
For the Years Ended December 31,
2013
2014
2015
—
—
—
(42,567)
(0.40)
(0.40)
(9,974)
(0.04)
(0.04)
US$ (Note 2(d))
(1,540)
(0.01)
(0.01)
F-32
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
12. Income Taxes - continued
The following table sets forth the significant components of deferred tax assets and liabilities:
Non-current deferred tax assets:
Accruals and others
Net operating loss carry forwards
Carryforwards of un-deducted advertising expenses
Subtotal
Less: valuation allowance
Total non-current deferred tax assets, net
Non-current deferred tax liabilities:
Recognition of intangible assets arisen from business combination
Total non-current deferred tax assets, net
2014
RMB
As of December 31,
2015
RMB
US$ (Note 2(d))
16,298
133,593
926
150,817
(150,817)
—
—
—
21,765
459,109
31
480,905
(480,905)
—
(24,415)
(24,415)
3,360
70,874
5
74,239
(74,239)
—
(3,769)
(3,769)
As of December 31, 2015, the Group had net operating loss carryforwards of RMB1,836,436 which can be carried forward to offset taxable income. The
carryforwards period for net operating losses under the EIT Law is five years. The net operating loss carry forward of the Group will start to expire in 2016 for
the amount of RMB39,069 if not utilized. The remaining net operating loss carryforwards will expire in varying amounts between 2017 and 2020. There is no
expiration for the advertising expenses carryforwards. Other than the expiration, there are no other limitations or restrictions upon the Group’s ability to use
these operating loss carryforwards.
A valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that the deferred tax assets will not
be utilized in the future. In making such determination, the Group evaluates a variety of factors including the Group’s operating history, accumulated deficit,
existence of taxable temporary differences and reversal periods.
As of December 31, 2014 and 2015, valuation allowances of RMB150,817 and RMB480,905 were provided because it was more likely than not that the
Group will not be able to utilize certain tax losses carry forwards and other deferred tax assets generated by its subsidiaries and Affiliated Entities. If events
occur in the future that allow the Group to realize more of its deferred tax assets than the presently recorded amount, an adjustment to the valuation allowances
will increase income when those events occur.
Movement of valuation allowance
Balance as the beginning of the year
Additions
Written off for expiration of net operating losses
Utilization of previously unrecognized tax losses and un-
deductible advertising expenses
Balance as the end of the year
For the Years Ended December 31,
2013
RMB
2014
RMB
2015
RMB
US$ (Note 2(d))
46,121
112,421
—
(7,725)
150,817
150,817
332,086
(1,998)
—
480,905
23,282
51,265
(308)
—
74,239
34,315
11,806
—
—
46,121
F-33
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
13. Ordinary Shares
On February 13, 2014, the Board has approved that all of the Company’s existing ordinary shares would be redesignated as Class B ordinary shares and
all of the Company’s outstanding preferred shares would be redesignated or automatically converted into Class B ordinary shares immediately prior to the
completion of the Company’s initial public offering (“IPO”). All options, regardless of grant dates, will entitle holders to the equivalent number of Class A
ordinary shares once the vesting and exercising conditions on such share-based compensation awards are met. Holders of Class A ordinary shares will be
entitled to one vote per share, while holders of Class B ordinary shares will be entitled to ten votes per share on all matters subject to shareholders’ vote. Each
Class B ordinary share is convertible into one Class A ordinary share at any time by the holder. Class A ordinary shares are not convertible into Class B
ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such
holder, such Class B ordinary shares will be automatically and immediately converted into the equivalent number of Class A ordinary shares.
On May 9, 2014, concurrently with the completion of the Company’s IPO, the Company issued 5,000,000, 1,666,666 and 5,000,000 shares of Class A
ordinary shares at a price per share equal to the IPO price to DCM Hybrid RMB Fund, L.P., the Company’s existing shareholder, Qihoo 360 Technology Co.
Ltd. and Ctrip Investment Holding Ltd., respectively.
On December 15, 2014, the Company entered into share subscription agreements with Unicorn Riches Limited, JD.com E-commerce (Investment) Hong
Kong Corporation Limited, Ctrip Investment Holding Ltd. and the respective personal holding companies of the Group’s chief executive officer and chief
operating officer, pursuant to which the Company issued 36,812,868 numbers of Class A ordinary shares for a total proceeds of RMB905,792 (US$148 million),
net of issuance cost of RMB14,279. The transaction was closed on December 31, 2014.
On May 8, 2015, the Company entered into share subscription agreements with Fabulous Jade Global Limited, Unicorn Riches Limited, Ctrip Investment
Holding Ltd., Esta Investments Pte. Ltd., DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P., and Sequoia Capital
2010 CV Holdco, Ltd., pursuant to which the Company issued 93,750,000 Class A ordinary shares for the cash consideration of US$400 million (RMB2,445
million) and certain business resource contributed by JD as part of Business Cooperation Agreement with the Company. The total consideration was
RMB3,104,457, including fair value of acquired Business Cooperation Agreement of RMB660,215(see Note 5), net of issuance cost of RMB1,078. The
transaction was closed on May 22, 2015.
On November 20, 2015, the Company entered into a share subscription agreement with HNA Tourism Holdings Group Co., Ltd. (“HNA”), pursuant to
which the Company issued 90,909,091 Class A ordinary shares for a total proceeds of US$500 million. The transaction was closed on January 21, 2016.
F-34
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
14. Share-based Compensation Expenses
The Company’s 2008 Incentive Compensation Plan (the “2008 Plan”) allows the plan administrator to grant options and restricted shares to the
Company’s employees, directors, and consultants, up to a maximum of 11,500,000 ordinary shares. In December 2012, the Board of Directors approved an
increase in the number of shares available for issuance under the plan to 18,375,140 ordinary shares. In April 2014 the Company adopted the 2014 Share
Incentive Plan (the “2014 Plan”). The maximum aggregate number of shares which may be issued pursuant to all awards under the 2014 Plan was initially
5,500,000 ordinary shares as of the date of its approval. The number of shares reserved for future issuances under the 2014 Plan will be increased automatically
if and whenever the ordinary shares reserved under the 2014 Plan account for less than1% of the total then-issued and outstanding ordinary shares on an as-
converted basis, as a result of which increase the ordinary shares reserved under the2014 Plan immediately after each such increase shall equal 5% of the then-
issued and outstanding ordinary shares on an as-converted basis.
The options granted under the 2008 plan have a contractual term of six years, and ones under 2014 plan have a contractual term of ten years. The
incentive awards under both 2008 plan and 2014 plan vest over a period of four years of continuous service, one fourth (1/4) of which vest upon the first
anniversary of the stated vesting commencement date and the remaining vest ratably over the following 36 months. Under the 2008 plan, incentive awards are
only exercisable upon occurrence of certain defined exercisable events. The Group did not recognize any share-based compensation expense for the awards
granted until the completion of the Company’s IPO on May 9, 2014 upon which the performance condition was satisfied. Share-based compensation expense of
RMB39,173 and RMB65,143 was recognized for the years ended December 31, 2014 and 2015, respectively.
Share options
The following table summarizes the Company’s option activities:
Outstanding at January 1, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2015
Vested and expected to vest at December 31, 2015
Exercisable at December 31, 2015
Number of
options
21,265,846
14,369,000
(4,732,482)
(820,553)
30,081,811
28,908,784
9,537,339
Weighted
Average
Exercise
Price
US$
Weighted
Average
Remaining
Contractual Life
In Years
Aggregate
Intrinsic
Value
US$’000
1.17
4.78
0.51
3.21
2.94
2.90
0.83
4.88
60,165
7.01
6.95
3.77
71,711
70,063
42,853
The total intrinsic value of options exercised for the years ended December 31, 2014 and 2015 were RMB68,094 and RMB150,325 (US$23,206),
respectively. No options were exercised for the year ended December 31, 2013.
The weighted-average grant date fair value for options granted during the years ended December 31, 2013, 2014 and 2015 was US$0.90, US$3.57 and
US$2.40, respectively, computed using the binomial option pricing model.
The total fair value of share options vested during the years ended December 31, 2013, 2014, and 2015 was RMB8,341, RMB23,849, and RMB50,089
(US$7,732), respectively.
The Company estimated the expected volatility at the date of grant date and each option valuation date based on the annualized standard deviation of the
daily return embedded in historical share prices of comparable companies. Risk free interest rate was estimated based on the yield to maturity of US treasury
bonds denominated in US$ at the option valuation date. The exercise multiple is estimated as the ratio of fair value of underlying shares over the exercise price
as at the time the option is exercised, based on a consideration of research study regarding exercise pattern based on empirical studies on the actual exercise
behavior of employees. The Company has never declared or paid any cash dividends on its capital stock, and the Company does not anticipate any dividend
payments on its ordinary shares in the foreseeable future. Expected term is the contract life of the option, and estimated forfeiture rates are determined based on
historical employee turnover rate.
F-35
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
14. Share-based Compensation Expenses - continued
The grant date fair value of each option is calculated using a binomial option pricing model with the following assumptions:
Expected volatility
Risk-free interest rate
Exercise multiple
Expected dividend yield
Expected term (in years)
Expected forfeiture rate (post-vesting)
2013
2014
2015
50-52%
1.08-1.75%
2.2-2.8
0%
6
0-20%
50%-51.1%
1.99-2.6%
2.2-2.8
0%
6-10
0-20%
50.9%-51.7%
2.09%-2.24%
2.2-2.8
0%
10
0-20%
Fair value of the common share on the date of option grant
US$0.91-1.98
RMB5.63-12.26
US$3.33-6.98
RMB20.66-43.31
US$4.21-5.26
RMB27.27-34.07
On May 15, 2014, the Company modified the exercise price of 576,000 share options granted on April 1, 2014 from US$5.00 to US$3.00. The
incremental compensation expense of RMB1,698 (US$276) was equal to the excess of the fair value of the modified award immediately after the modification
over the fair value of the original award immediately before the modification. The incremental compensation expense will be recognized over the remaining
service period.
On December 8, 2014, the Company extended the contract life of 2,159,812 share options granted under 2008 plan from six years to ten years. The
incremental compensation expense was immaterial and was recognized immediately since the options were fully vested.
As of December 31, 2015, there was RMB301,518 (US$46,546) in total unrecognized compensation expense related to unvested options, which is
expected to be recognized over a weighted-average period of 3.15 years.
Restricted shares
The total intrinsic value of restricted shares vested for the years ended December 31, 2014 and 2015 were RMB1,011 and RMB1,694 (US$261),
respectively.
The fair value of restricted shares with service conditions or performance conditions is based on the fair market value of the underlying ordinary shares on
the date of grant.
The following table summarizes the Company’s restricted shares activity under the option plans:
Outstanding as of January 1, 2015
Grant
Vested
Forfeited
Outstanding as of December 31, 2015
Vested and expected to vest at December 31, 2015
Numbers of
restricted
shares
Weighted
average grant
date fair value
179,382
100,914
(52,488)
—
227,808
227,808
3.36
4.82
3.36
—
4.00
4.00
As of December 31, 2015, there was RMB5,723 (US$883) in total unrecognized compensation expense related to restricted shares, which is expected to
be recognized over a weighted-average period of 3.15years.
F-36
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
15. Loss Per Share
The following table sets forth the computation of basic and diluted loss per share for the periods indicated:
Numerator:
Net loss attributable to Tuniu Corporation
Deemed dividends upon redesignation of Series A Preferred Shares
Deemed dividends upon redesignation of Series D Preferred Shares
Numerator for basic and diluted net loss per share
Denominator:
Weighted average number of ordinary shares outstanding-basic and
diluted
Loss per share-basic and diluted
For the Years Ended December 31,
2013
RMB
2014
RMB
2015
RMB
US$ (Note 2(d))
(79,632)
(59,428)
—
(139,060)
(447,858)
—
(15,606)
(463,464)
(1,459,379)
—
—
(1,459,379)
(225,289)
—
—
(225,289)
26,000,000
(5.35)
105,746,313
(4.38)
248,362,837
(5.88)
248,362,837
(0.91)
For the years ended December 31, 2013, 2014 and 2015, the Company had securities which could potentially dilute basic loss per share in the future,
which were excluded from the computation of diluted loss per share as their effects would have been anti-dilutive. Such outstanding securities consist of the
following:
Series A preferred shares
Series B preferred shares
Series C preferred shares
Series D preferred shares
Option and restricted shares
Total
16. Restricted Net Assets
2013
2014
2015
13,506,748
21,564,115
25,782,056
21,771,472
17,631,953
100,256,344
—
—
—
—
21,445,228
21,445,228
—
—
—
—
30,309,619
30,309,619
Pursuant to laws applicable to entities incorporated in the PRC, the Group’s subsidiaries and Affiliated Entities in the PRC must make appropriations from
after-tax profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion
fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires an annual appropriation of 10% of after tax
profit (as determined under accounting principles generally accepted in the PRC at each year-end) until the accumulative amount of such reserve fund reaches
50% of a company’s registered capital; the other fund appropriations are at the subsidiaries’ discretion. These reserve funds can only be used for specific
purposes of enterprise expansion and staff bonus and welfare and are not distributable as cash dividends. In addition, due to restrictions on the distribution of
share capital from the Group’s PRC subsidiaries and Affiliated Entities and also as a result of these entities’ unreserved accumulated losses, total restrictions
placed on the distribution of the Group’s PRC subsidiaries and Affiliated Entities’ net assets was RMB2,642 million, or 80% of the Group’s total consolidated
net assets as of December 31, 2015.
F-37
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
17. Commitments and Contingencies
(a) Operating Lease Agreement
The Group leases its offices under non-cancelable operating lease agreements. Certain of these arrangements contain free or escalating rent clauses. The
Group recognizes rental expense under such arrangements on a straight-line basis over the lease term. Rental expenses amounting to RMB12,582, RMB15,969
and RMB36,445 during the years ended December 31, 2013, 2014 and 2015, respectively, were charged to the consolidated statements of comprehensive loss
when incurred.
As of December 31, 2015, future minimum commitments under non-cancelable agreements were as follows:
Years Ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
(b) Capital Commitments
RMB
US$ (Note 2(d))
53,393
46,051
33,978
26,795
26,307
28,508
215,032
8,243
7,109
5,245
4,136
4,061
4,401
33,195
As of December 31, 2015, capital commitments relating to leasehold improvement and purchase of equipment were approximately RMB192.
(c) Contingencies
From time to time, the Group is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available
information, management does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is likely to have a material
adverse effect on the Group’s financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Group’s view
of these matters may change in the future. If an unfavorable outcome were to occur, there exists the possibility of a material adverse impact on the Group’s
financial position and results of operations for the periods in which the unfavorable outcome occurs.
F-38
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
18. Related party transactions and balances
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the
other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant
influence. Related parties may be individuals or corporate entities.
The following entities are considered to be related parties to the Group:
Name of related parties
Ctrip Investment Holding Co., Ltd. (“Ctrip”)
JD.com, Inc. (“JD”)
a) Transactions with related parties:
Relationship with the Group
one board director of the Group
one board director of the Group
Ctrip purchased 5,000,000 Class A ordinary shares in a private placement concurrent with the Company’s initial public offering, an additional
3,731,034 Class A ordinary shares for a total of US$15,000,000 through a private placement transaction in December 2014 as well as an additional
3,750,000 Class A ordinary shares for a total of US$20,000,000 through a private placement transaction in May 2015.
The Group conducts transactions in the ordinary course of its business with Ctrip on the terms of arm-length transactions. The Group sells the
packaged-tours through Ctrip’s online platform and the commission fees for Ctrip’s service were immaterial. In addition, Ctrip sells the hotel rooms and
air tickets products through the Group’s online platform and commission fees the Group earned were RMB0.7 million and RMB3.5 million for the years
ended December 31, 2014 and 2015, respectively.
On May 8, 2015, the Company issued 65,625,000 Class A ordinary shares to Fabulous Jade Global Limited, a subsidiary of JD, for cash
consideration of RMB1,528.2 million (US$250 million) and RMB660.2 million of the business resource contributed by JD, which including the exclusive
rights to operate the leisure travel channel for both JD’s website and mobile application, JD's preferred partnership for hotel and air ticket reservation
service, the internet traffic support and marketing support for the leisure travel channel for a period of five years started from August 2015.
b) Balances with related parties:
Due from Ctrip
Due from JD
Total
Due to Ctrip
Due to JD
Total
19. Subsequent Events
2014
RMB
As of December 31,
2015
RMB
US$ (Note 2(d))
637
—
637
—
—
—
59,142
862
60,004
28,669
93
28,762
9,130
133
9,263
4,426
14
4,440
On March 4, 2016, the Company modified the exercise price for certain outstanding options that have been granted under the Company’s 2014 Share
Incentive Plan in order to provide appropriate incentives to the relevant employees. The exercise price were modified to US$3.09 per ordinary share which
represent the closing price of the day prior to the modification with other conditions remaining unchanged. The Company estimated that the total incremental
cost is approximately US$3.4 million (RMB22.1 million). The incremental cost related to the vested option is immaterial and the incremental cost related to the
unvested options will be amortized over the remaining period ranged from 33 months to 45 months.
F-39
FINANCIAL STATEMENTS SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
CONDENSED BALANCE SHEETS
(All amounts in thousands, except for share and per share data, or otherwise noted)
ASSETS
Current assets
Cash and cash equivalents
Amounts due from subsidiaries
Prepayments and other current assets
Total current assets
Intangible assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Accrued expenses and other current liabilities
Total current liabilities
Non-current liabilities
Investments (income)/ deficit in subsidiaries and VIE
Total non-current liabilities
Total liabilities
Equity
Ordinary shares (US$0.0001 par value; 1,000,000,000 shares (including 780,000,000
Class A shares, 120,000,000 Class B shares and 100,000,000 shares to be designated by
the Board of Directors) authorized as of December 31, 2014 and 2015; 188,435,922
shares (including 82,487,876 Class A shares and 105,948,046 Class B shares) and
286,970,892 shares (including 269,597,392 Class A shares and 17,373,500 Class B
shares) issued and outstanding as of December 31, 2014 and 2015, respectively)
Additional paid-in capital
Accumulated other comprehensive income/(loss)
Accumulated deficit
Total Tuniu Corporation shareholders’ equity
Total liabilities and equity
F-40
2014
RMB
As of December 31,
2015
RMB
US$ (Note 2(d))
1,323,280
18,000
1,561
1,342,841
—
1,342,841
16,723
16,723
(82,605)
(82,605)
(65,882)
1,090,097
3,468,022
4,888
4,563,007
607,669
5,170,676
664,420
664,420
1,185,106
1,185,106
1,849,526
168,282
535,370
755
704,407
93,808
798,215
102,568
102,568
182,949
182,949
285,517
121
2,298,727
(21,081)
(869,044)
1,408,723
1,342,841
181
5,482,367
167,025
(2,328,423)
3,321,150
5,170,676
28
846,332
25,784
(359,446)
512,698
798,215
FINANCIAL STATEMENTS SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE LOSS
(All amounts in thousands, except for share and per share data, or otherwise noted)
Operating expenses
Research and product development
Sales and marketing
General and administrative
Share of loss of subsidiaries and affiliated entities
Other operating income
Total operating expenses
Loss from operations
Other income/(expenses)
Interest income
Foreign exchange gains/(losses),net
Other income, net
Loss before income tax expense
Net loss
Deemed dividends to preferred shareholders
Net loss attributable to ordinary shareholders
Net loss
Other comprehensive income/( loss)
Foreign currency translation adjustment, net of nil tax
Comprehensive loss
For the Years Ended December 31,
2013
2014
2015
US$ (Note 2(d))
—
—
(4,027)
(77,414)
—
(81,441)
(81,441)
1,738
71
—
(79,632)
(79,632)
(59,428)
(139,060)
(79,632)
(5,331)
(84,963)
—
—
(5,617)
(446,159)
415
(451,361)
(451,361)
6,619
(3,116)
—
(447,858)
(447,858)
(15,606)
(463,464)
—
—
(19,016)
(1,341,212)
—
(1,360,228)
(1,360,228)
19,183
(119,161)
827
(1,459,379)
(1,459,379)
—
(1,459,379)
—
—
(2,936)
(207,047)
—
(209,983)
(209,983)
2,961
(18,395)
128
(225,289)
(225,289)
—
(225,289)
(447,858)
(1,459,379)
(225,289)
(1,358)
(449,216)
188,106
(1,271,273)
29,038
(196,251)
F-41
FINANCIAL STATEMENTS SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(All amounts in thousands, except for share and per share data, or otherwise noted)
Cash (used in) provided by operating activities
Cash used in investing activities
Cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase /(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
Supplemental disclosure of non-cash investing and financing activities
Deemed dividends to preferred shareholders
Accrued issuance cost related to private placement
Accrual related to deferred initial public offering costs
Receivables related to exercise of stock option
F-42
For the Years Ended December 31,
2013
RMB
2014
RMB
(3,058)
(93,595)
306,360
(5,250)
204,457
97,520
301,977
59,428
—
2,127
—
2,636
(518,690)
1,540,397
(3,040)
1,021,303
301,977
1,323,280
15,606
14,076
—
(1,020)
2015
RMB
645,364
(3,434,719)
2,442,860
US$ (Note 2(d))
99,627
(530,229)
377,113
113,312
(233,183)
1,323,280
1,090,097
—
—
—
(3,379)
17,492
(35,997)
204,279
168,282
—
—
—
(522)
FINANCIAL STATEMENTS SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Note to Financial Statements Schedule I
Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 5-04-(c) of Regulation S-X, which require condensed financial
information as to the financial position, change in financial position and results of operations of a parent company as of the same dates and for the same periods
for which audited consolidated financial statements have been presented when the restricted net assets of consolidated subsidiaries exceed 25 percent of
consolidated net assets as of the end of the most recently completed fiscal year.
The condensed financial information has been prepared using the same accounting policies as set out in the accompanying consolidated financial
statements except that the equity method has been used to account for investments in its subsidiaries and VIE. Such investments in subsidiaries are presented on
the balance sheets as investment (income)/ deficit in subsidiaries and VIE and the loss of the subsidiaries is presented as share of loss of subsidiaries and VIE.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. The footnote disclosures contain supplemental information relating to the operations
of the Company and, as such, these statements should be read in conjunction with the notes to the accompanying consolidated financial statements.
As of December 31, 2015, the Company had no significant capital and other commitments, long-term obligations, or guarantee, except for those which
have separately disclosed in the consolidated financial statements.
F-43
List of Principal Subsidiaries and Consolidated Affiliated Entities
EXHIBIT 8.1
Subsidiaries
Tuniu (HK) Limited
Tuniu (Nanjing) Information Technology Co., Ltd.
Beijing Tuniu Technology Co., Ltd.
Consolidated Affiliated Entities
Nanjing Tuniu Technology Co., Ltd.
Beijing Tuniu International Travel Service Co., Ltd.
Nanjing Tuniu International Travel Service Co., Ltd.
Shanghai Tuniu International Travel Service Co., Ltd.
Nanjing Tuzhilv Tickets Sales Co., Ltd.
Tianjin Classic Holiday International Travel Agency Co., Ltd.
Zhejiang Zhongshan International Agency Co., Ltd.
Beijing Global Tour International Travel Service Co., Ltd.
Tuniu Insurance Brokers Co., Ltd.
Beijing Hengxin International Travel Agency Co., Ltd.
Place of Incorporation
Hong Kong
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
PRC
EXHIBIT 12.1
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Dunde Yu, certify that:
1. I have reviewed this annual report on Form 20-F of Tuniu Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting.
Date: April 28, 2016
By:
/s/ Dunde Yu
Name: Dunde Yu
Title: Chief Executive Officer
EXHIBIT 12.2
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Conor Chia-hung Yang, certify that:
1. I have reviewed this annual report on Form 20-F of Tuniu Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial
reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting.
Date: April 28, 2016
By:
/s/ Conor Chia-hung Yang
Name: Conor Chia-hung Yang
Title: Chief Financial Officer
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 13.1
In connection with the Annual Report of Tuniu Corporation (the “Company”) on Form 20-F for the year ended December 31, 2015 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Dunde Yu, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: April 28, 2016
By:
/s/ Dunde Yu
Name: Dunde Yu
Title: Chief Executive Officer
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 13.2
In connection with the Annual Report of Tuniu Corporation (the “Company”) on Form 20-F for the year ended December 31, 2015 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Conor Chia-hung Yang, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: April 28, 2016
By:
/s/ Conor Chia-hung Yang
Name: Conor Chia-hung Yang
Title: Chief Financial Officer
Consent of Independent Registered Public Accounting Firm
EXHIBIT 15.1
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-198111) of Tuniu Corporation of our report dated
April 28, 2016 relating to the consolidated financial statements, financial statements schedule I and the effectiveness of internal control over financial reporting,
which appears in this Annual Report on Form 20-F.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
April 28, 2016
EXHIBIT 15.2
Office: +852 2801 6066
Mobile: +852 6621 8995
lnicklas@traversthorpalberga.com
Tuniu Corporation.
Tuniu Building No. 699-32
Xuanwudadao, Xuanwu District
Nanjing, Jiangsu Province 210042
The People’s Republic of China
April 28, 2016
Dear Sirs
We have acted as legal advisers as to the laws of the Cayman Islands to Tuniu Corporation, an exempted limited liability company incorporated in the Cayman
Islands (the "Company"), in connection with the filing by the Company with the United States Securities and Exchange Commission (the "SEC") of an annual
report on Form 20-F for the year ended 31 December 2015 ("Form 20-F").
We hereby consent to the reference of our name under the headings, "Item 10.E. Additional Information—Taxation—Cayman Islands Taxation" and "Item 16G.
Corporate Governance" in the Form 20-F , and further consent to the incorporation by reference of the summaries of our opinions under these captions into
Tuniu Corporation’s registration statement on Form S-8 (File No. 333-198111) that was filed on August 13, 2014.
Yours faithfully
/s/ TRAVERS THORP ALBERGA
FANGDA PARTNERS
上海 Shanghai (cid:120)(cid:3)北京 Beijing (cid:120)(cid:3)深圳 Shenzhen (cid:120)(cid:3)香港 Hong Kong
http://www.fangdalaw.com
EXHIBIT 15.3
中国北京市朝阳区光华路1号
嘉里中心北楼27楼
邮政编码: 100020
27/F, North Tower, Kerry Center
No. 1, Guanghua Road, Chaoyang District
Beijing 100020, PRC
Tuniu Corporation
Tuniu Building No. 699-32
Xuanwudadao, Xuanwu District
Nanjing, Jiangsu Province 210042
The People’s Republic of China
Dear Sirs:
电子邮件 Email: email@fangdalaw.com
电 话 Tel.: 861057695600
传 真 Fax: 861057695788
文 号 Ref.: 15CF1107
Consent of Fangda Partners
April 28, 2016
We hereby consent to the reference of our name under the heading "Item 3.D. Key Information—Risk Factors", “Item 4.B. Information on the Company—
Business Overview—PRC Regulation”, “Item 7.B. Major Shareholders and Related Party Transactions—Related Party Transactions—Contractual
Arrangements” and “Item 18. Financial Statements—Notes to the Consolidated Financial Statements” in Tuniu Corporation’s Annual Report on Form 20-F for
the year ended December 31, 2015 (the “Annual Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) in the month of
April 2016. We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of
1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.
Very truly yours,
/s/ Fangda Partners