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 (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
(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, 2018.
OR
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
(cid:133) SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report.........................
For the transition period from to
Commission file number: 001-36430
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)
Ms. Maria Yi Xin, Chief Financial Officer
Telephone: +(86 25) 6960-9988
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.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the
annual report.
371,958,044 Class A ordinary shares (including 19,323,900 Class A ordinary shares, represented by 6,441,300 ADSs, repurchased 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, 2018.
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 every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
(cid:95) Yes (cid:133) No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(cid:133)
(cid:133)
Accelerated filer
Emerging growth company
(cid:95)
(cid:133)
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to
Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its
Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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
TABLE OF CONTENTS
INTRODUCTION
FORWARD-LOOKING INFORMATION
PART I
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.
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
PART II
Item 13.
Item 14.
Item 15.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
Item 16H.
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
Audit Committee Financial Expert
Code of Ethics
Principal Accountant Fees and Services
Exemptions from the Listing Standards for Audit Committees
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
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
i
1
2
3
3
3
3
40
66
66
87
98
100
100
101
114
115
118
118
118
118
119
119
119
120
120
120
121
121
122
122
122
123
127
F-1
In this annual report, except where the context otherwise requires and for purposes of this annual report only:
INTRODUCTION
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
“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.
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. 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. 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 RMB6.8755 to US$1.00,
the noon buying rate in effect as of December 31, 2018.
1
FORWARD-LOOKING INFORMATION
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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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;
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;
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.
2
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 data for the three years ended December 31, 2016, 2017 and 2018 and the consolidated balance sheets data as of December 31,
2017 and 2018 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 data for the years ended December 31, 2014 and 2015 and the selected
consolidated balance sheet data as of December 31, 2014, 2015 and 2016 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.
We adopted ASC 606, “Revenue from Contracts with Customers”, effective on January 1, 2017 by applying the full retrospective method.
For the years ended December 31, 2015 and 2016, we have recast certain of the following financial data as a result of the adoption of ASC 606,
“Revenue from Contracts with Customers”. See Note 2(af) “Recently Issued Accounting Pronouncements” to our consolidated financial statements
included in this Annual Report on Form 20-F for further information regarding these changes. In addition, since the beginning of 2017, we have
implemented certain changes in our arrangements with the tour operators. Our role in the organized tour arrangements has changed from being a
principal into an agent that provides tour booking services to the tour operators and travellers. As a result of the change in business arrangements,
revenues from the organized tours for 2017 and 2018 were generally recognized on a net basis except for those that we take substantive inventory
risk and the self-operated local tour operators in which we act as a principal (see Note 2(s) “Revenue Recognition” to our consolidated financial
statements included in this Annual Report on Form 20-F for further information). Under ASC 606, “Revenue from Contracts with Customers”,
substantially all revenues from our organized tours for the years ended December 31, 2015 and 2016 continued to be recognized on a gross basis
because of our principal role for these organized tours up to the end of 2016. Revenues and cost of revenues for the year ended December 31, 2014
were not recast and were presented in accordance with ASC 605, “Revenue Recognition”.
3
For the Years Ended December 31,
2014
RMB
2015
RMB
2016
RMB
2017
RMB
2018
RMB
US$
(in thousands, except for share, per share and per ADS data)
Summary Consolidated Statements
of Comprehensive Loss Data:
Revenues:
Packaged tours
Others
3,525,951
28,756
7,578,822
127,804
10,147,148
401,100
1,589,353
602,747
1,830,630
409,519
Total revenues
Less: Business and related taxes
3,554,707
(19,768)
7,706,626
(35,526)
10,548,248
(17,307)
2,192,100
—
2,240,149
—
266,254
59,562
325,816
—
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 and investment income, net
Foreign exchange losses, net
Other (loss)/income, net
Loss before income tax expense
Income tax benefit/(expense)
3,534,939
(3,308,801)
7,671,100
(7,309,062)
10,530,941
(9,891,736)
2,192,100
(1,024,206)
2,240,149
(1,065,022)
325,816
(154,901)
226,138
362,038
639,205
1,167,894
1,175,127
170,915
(104,881)
(434,191)
(166,988)
6,902
(298,199)
(1,149,512)
(385,442)
12,175
(601,402)
(1,900,397)
(658,790)
22,323
(541,126)
(894,148)
(637,795)
21,749
(315,222)
(778,126)
(487,372)
56,599
(45,847)
(113,174)
(70,885)
8,232
(473,020)
(1,458,940)
(2,499,061)
(883,426)
(348,994)
(50,759)
31,284
(5,334)
(788)
76,516
(83,118)
(1,334)
87,305
(9,734)
(2,553)
130,250
(2,394)
(121)
152,929
(11,729)
8,576
22,243
(1,706)
1,247
(447,858)
—
(1,466,876)
589
(2,424,043)
1,711
(755,691)
(15,625)
(199,218)
(153)
(28,975)
(22)
Net loss
(447,858)
(1,466,287)
(2,422,332)
(771,316)
(199,371)
(28,997)
Net loss attributable to noncontrolling interests
Net (loss)/income attributable to redeemable noncontrolling
interests
Net loss attributable to Tuniu Corporation
Accretion on redeemable noncontrolling interests
Deemed dividends to preferred shareholders
Net loss attributable to ordinary shareholders
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
—
(3,006)
(15,104)
(4,934)
(14,037)
(2,042)
—
(447,858)
—
(15,606)
(463,464)
—
(1,463,281)
—
—
(1,463,281)
(34)
(2,407,194)
(106)
—
(2,407,300)
922
(767,304)
(5,725)
—
(773,029)
178
(185,512)
(2,422)
—
(187,934)
26
(26,981)
(352)
—
(27,333)
(4.38)
(4.38)
(13.15)
(13.15)
(5.89)
(5.89)
(17.67)
(17.67)
(6.45)
(6.45)
(19.35)
(19.35)
(2.04)
(2.04)
(6.12)
(6.12)
(0.50)
(0.50)
(1.50)
(1.50)
(0.07)
(0.07)
(0.21)
(0.21)
computing basic and diluted loss per share
105,746,313 248,362,837 373,347,855 378,230,039 377,744,381 377,744,381
4
Summary Consolidated
Balance Sheet Data:
Cash and cash equivalents
Restricted cash
Short-term investments
Prepayments and other current
assets
Long-term investments
Total assets
Accounts and notes payable
Advances from customers
Total liabilities
Redeemable noncontrolling
interests
Ordinary shares
Total equity
2014
RMB
2015
RMB
2016
RMB
2017
RMB
2018
RMB
US$
(in thousands)
As of December 31,
1,457,722
44,030
468,570
575,297
—
2,645,017
382,705
638,828
1,236,294
—
121
1,408,723
2,101,217
338,997
1,226,415
1,285,607
—
7,186,141
855,588
1,138,009
3,851,394
—
181
3,334,747
1,085,236
124,561
3,603,497
1,632,329
58,764
9,171,654
1,022,704
1,806,493
4,581,927
90,072
242
4,499,655
484,101
91,810
3,084,634
939,463
484,991
6,657,805
852,500
1,210,615
2,963,777
96,719
248
3,597,309
560,356
270,670
859,211
1,673,584
1,302,506
6,556,923
1,305,610
1,058,946
3,143,071
69,319
249
3,344,533
81,500
39,367
124,967
243,413
189,442
953,665
189,893
154,017
457,141
10,082
36
486,442
For the Year Ended December 31,
2014
RMB
2015
RMB
2016
RMB
2017
RMB
(in thousands)
2018
RMB
US$
Summary Consolidated Statements of Cash Flow Data:
Net cash (used in)/provided by operating activities
Net cash (used in)/provided by investing activities
Net cash provided by/(used in) financing activities
(271,102)
(193,143)
1,540,397
(514,735)
(1,620,201)
3,005,838
(2,239,444)
(2,728,683)
3,627,058
(418,649)
615,554
(784,766)
268,089
153,992
(145,212)
38,992
22,398
(21,122)
B.
Capitalization and Indebtedness
Not applicable.
5
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 has
slowed down in recent years and such slowdown may continue. According to the National Bureau of Statistics of China, China’s gross domestic
product (GDP) growth was 6.6% in 2018. We cannot assure you that the Chinese economy will continue to grow, or that if there is growth, such
growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on our business. 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 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, the
earthquake in Jiuzhaigou, China in August 2017 , the volcanic eruption in Bali, Indonesia in November 2017, as well as the boat capsizing accident
in Phuket island, Thailand in July 2018, which all had a negative impact on our target customers. In addition, leisure travel products and services to
overseas destinations accounted for over 67% of our packaged tour gross bookings in 2018. In addition, our overseas leisure travel business may be
negatively affected by any adverse change in the visa policies of foreign countries that makes it difficult for Chinese nationals to obtain tourist visas.
Terrorist attacks or threats of terrorist attacks, political unrests, wars, imposition of taxes or surcharges by regulatory authorities and regional
hostilities may also reduce the demand for overseas tours. For example, the Nice terrorist attack in France, the coup in Turkey, the deployment of
THAAD by South Korea in 2016, and the political crisis in Maldives in 2018, all of which negatively impacted short-term travel demand for the
tours to the affected regions. We have little or no control over the occurrence of such declines or disruptions, which could result in a decrease in
demand for our travel products and services. This decrease in demand, depending on the scope and duration, could materially and adversely affect
our business and results of operations over the short and long term.
If we do not continue to provide competitive travel products and services, we may not be able to attract new customers or to retain existing
customers, and our business, financial condition and results of operations could suffer.
Our success depends on our ability to attract new customers and retain existing customers, which in turn requires our continual provision
of a wide array of competitive travel products and services. In light of the rapidly rising levels of disposable income in China, demand for vacation,
recreation and other forms of leisure travel has increased rapidly in recent years. Participants in the online travel industry are continually developing
new travel products and services in response to increasing customer demand. We strive to stay abreast of emerging and rapidly changing customer
preferences and to continue to anticipate trends that will appeal to existing and potential customers. We will also continue to invest in research and
development in order to constantly improve the speed, accuracy and comprehensiveness of our online platform. If we fail to keep on improving our
travel products and services and platform at a competitive pace, we may lose customers to our competitors and may not attract new customers. In
addition to packaged tours, we provide other travel-related services, such as sales of tourist attraction tickets, visa application services, financial
services, hotel booking services, air ticketing services, train ticketing services, bus ticketing services, car rental services and insurance 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.
6
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 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 travel suppliers to provide high-quality travel products and
services. Our reputation and brand will be negatively affected if travel suppliers fail to provide quality travel products and services.
The actions we take to monitor and enhance the performance of travel suppliers may be inadequate in timely discovering quality issues.
There have been customer complaints and litigation against us due to 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 travel suppliers’
performance or misconduct, which could materially and adversely affect our business, financial condition and results of operations.
We have incurred losses in the past and will likely incur losses in the future.
We have incurred net losses historically and will likely continue to incur losses in the future as we grow our business. We had a net loss of
RMB2,422.3 million, RMB771.3 million and RMB199.4 million (US$29.0 million) in 2016, 2017 and 2018, 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 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 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, who also supplies travel products to customers directly or through our
competitors’ platforms.
Many of our competitors have launched, and may continue to launch, aggressive advertising campaigns, special promotions and other
marketing activities to promote their brands, attract new customers or increase their market shares. In response, we started to take and may continue
to take similar measures and as a result will incur significant expenses, which in turn could negatively affect our operating margin in the quarters or
years when such promotional activities are carried out. We cannot assure you that we will be able to successfully compete against existing or new
competitors. If we are not able to compete successfully, we may lose our market share and our business, financial condition and results of operations
may be materially and adversely affected.
7
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 travel suppliers, or develop relationships with new travel
suppliers on favorable terms or terms similar to those we currently have, our business and results of operations may suffer” and “—Risks Related to
Our Business and Industry—The proper functioning of our online platform, including our web and mobile platforms, and management systems is
essential to our business. Any failure to maintain their satisfactory performance will materially and adversely affect our business, reputation,
financial condition and results of operations.” Failure to maintain the strength of our brand could reduce the number of customers and deteriorate
our relationships with travel suppliers.
In addition, some of our competitors have well-established brands in the travel industry, and may have more financial and other resources
to advertise and promote their brands. Therefore, we expect to continue incurring advertising and marketing expenditures and use other resources to
maintain and increase our brand recognition. Our marketing costs may also increase as a result of inflation in media pricing in China, including costs
for purchasing search engine keywords and placing online and offline advertisements. If we fail to cost-effectively maintain and increase our brand
recognition, our financial condition and results of operations may be materially and adversely affected.
We are exposed to proceedings or claims arising from travel-related accidents or customer misconduct during their travels, the occurrence of
which may be beyond our control.
Accidents are a leading cause of mortality and morbidity among tourists. We are exposed to risks of our customers’ claims arising from or
relating to travel-related accidents. As we enter into contracts with our customers directly, our customers typically take actions against us for the
damages they suffer during their travels. However, such accidents may result from the negligence or misconduct of 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 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 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.
8
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 2018, the number of orders placed through our mobile platform accounted for over 90% of total orders placed through our online
platform and average daily unique visitors on our mobile platform accounted for over 75% of the average daily unique visitors on our online
platform. As a result, our mobile platform serves as an important and integral part of our customers’ research on travel-related information. The
lower functionality, speed and memory generally associated with mobile devices may make it more difficult for our customers to fully access our
mobile platform, and we may fail to attract and retain a significant portion of the growing number of customers who search for and book travel
products and services through mobile devices. We may also experience difficulties monetizing customer traffic to our mobile platform.
In addition, we rely significantly on our proprietary N-Booking system and other management systems to facilitate and process
transactions. We may in the future experience system interruptions that prevent us from efficiently fulfilling bookings or providing services and
support to our customers or travel suppliers. Any interruptions, outages or delays in our systems, or deterioration in their performance, could impair
our ability to process transactions and decrease the quality of our services to our customers or travel suppliers. If we were to experience frequent or
persistent system failures, our reputation and brand would be harmed.
If we are unable to maintain existing relationships with 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 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 travel suppliers establish similar or more favorable relationships with our competitors, or if 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 travel suppliers. We cannot assure you that travel suppliers will renew our agreements in
the future on favorable terms or terms similar to those we currently have agreed. 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.
9
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. 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 increase in the number of offline retail stores and local
tour operators to strengthen our service capability. Such growth and expansion has placed, and will continue to place, significant strain on our
management and resources. We cannot assure you that this level of significant growth and expansion will be sustainable or achieved at all in the
future. We believe that our continued growth and expansion will depend on our ability to provide competitive travel products and services, attract
new customers, continue developing travel products and services and innovative technologies in response to customer demand and preferences,
increase brand awareness through marketing and promotional activities, expand into new market segments, and take advantage of any growth in the
relevant markets. We cannot assure you that we will achieve any of the above.
To manage our growth and expansion, and to achieve profitability, we anticipate that we will need to implement a variety of new and
upgraded operational and financial systems, procedures and controls, including the improvement of our N-Booking system and other management
systems. We will also need to further expand, train, manage and motivate our workforce and manage our relationships with 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.
10
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 founder, chairman
and chief executive 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. Such proceedings are inherently
uncertain and their results cannot be predicted with certainty. Regardless of the outcome and merit of such proceedings, any such legal action could
have an adverse impact on our business because of defense costs, negative publicity, diversion of management’s attention and other factors. In
addition, it is possible that an unfavorable resolution of one or more legal or administrative proceedings, whether in the PRC or in another
jurisdiction, could materially and adversely affect our financial position, results of operations or cash flows in a particular period or damage our
reputation. In addition, our online platform contains information about our travel products and services, vacation destinations and other travel-
related topics. It is possible that our customers would take action against us in the event that any content accessible on our online platform were to
contain errors or false or misleading information.
We may be subject to detrimental adverse publicity, malicious allegations or other conduct by people or entities, which could harm our
reputation, adversely affect our business and the trading price of our ADSs.
We have been, and in the future may be, the target of adverse publicity, malicious allegations or other detrimental conduct by people or
entities. Such allegations, directly or indirectly against us, may be posted in internet chat-rooms or on blogs or any website by anyone on an
anonymous basis. We may be required to spend significant time and incur substantial costs in response to such allegations or other detrimental
conduct, and there is no assurance that we will be able to conclusively refute each of them within a reasonable period of time, or at all. Our
reputation may be harmed as a result of the public dissemination of malicious allegations about our personnel, business, operations, accounting,
prospects or business ethics, which in turn could adversely affect our business and the trading price of our ADSs.
We have limited experience and operating history in developing and providing new products and services, which may negatively affect our
business, financial condition and results of operations.
As part of our growth strategy, we intend to develop and offer new travel products and services to satisfy the evolving needs of our
customers. In January 2016, we launched an open platform for air ticketing and hotel booking services. New bundles such as the “Air Ticket plus
X” and “Hotel plus X” allow our new services to closely complement our core leisure travel services. We also launched bus ticketing and car rental
channels in order to provide leisure travellers 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.
11
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 offer financial services in China since 2015. We provide various financial services, including consumer financing, supply
chain financing, microcredit, factoring service and insurance products. We used to provide yield enhancement products, the provision of which has
been terminated in 2018. Expansion in the finance sector involves new risks and challenges. For certain financial products, we have committed or
will commit our own capital. Our lack of familiarity with the finance sector may make it difficult for us to anticipate the demands and preferences in
the market and develop financial products that meet the requirements and preference. We may not be able to successfully identify new product and
service opportunities or develop and introduce these opportunities to our clients in a timely and cost-effective manner, or our clients may be
disappointed in the returns from financial products that we offer.
The risk of nonpayment of loans is inherent in the finance business and we are subject to credit risk resulting from defaults in payment for
loans by the suppliers and customers. Credit risks are exacerbated in consumer financing because there is relatively limited information available
about the credit histories of customers. There can be no assurances that our monitoring of credit risk issues and our efforts to mitigate credit risks
through our credit assessment and risk management policies are or will be sufficient to result in lower delinquencies. Furthermore, our ability to
manage the quality of our loan portfolio and the associated credit risks will have significant impact on the results of operations of our finance
business. Deterioration in the overall quality of loan portfolio and increased exposure to credit risks may occur due to a variety of reasons, including
factors beyond our control, such as a slowdown in the growth of the PRC or global economies or a liquidity or credit crisis in the PRC or global
finance sectors, which may adversely affect the businesses, operations or liquidity of our suppliers and customers or their ability to repay or roll over
their debt. Any significant deterioration in the asset quality of our finance business and significant increase in associated credit risks may have a
material adverse effect on our business, results of operations and financial condition.
In addition, the development of finance business is capital intensive. We continue to provide management, administration and collection
services on the transferred financial assets and are obligated to absorb a portion of the losses incurred in the outstanding portfolio of the transferred
financial assets in the event of default. We may need additional cash resources due to further developments of our financial services or changed
business conditions, which may cause us to seek credit facilities or sell additional equity or debt securities. The incurrence of indebtedness would
result in increased debt obligations and could result in operating and financial covenants that would restrict our operations. Additionally, it is
uncertain whether financing will be available in amounts or on terms acceptable, if at all.
We have limited experience in operating our self-operated local tour operators, which may negatively affect our business, financial condition
and results of operations.
Starting in 2016, we further strengthened our presence in the travel supply chain by introducing a number of self-operated local tour
operators in major destinations such as Xiamen, Beijing, Changsha. We operate our domestic self-operated local tour operators primarily through
Xiamen Suiwang International Travel Service Co., Ltd., a wholly owned subsidiary of us established in January 2016. Our self-operated local tour
operators directly provide destination-based services to our organized tour customers, starting from their arrival at the destination and all the way
until they depart from the destination. Similar to our travel suppliers, our self-operated local tour operators coordinate the tours based on pre-
arranged itineraries and cover all components of the tours including transportations, accommodations, entertainments, meals and tour guide services.
The tour guides directly serving our customers are either directly employed by us or working for us on a contract basis. By operating the self-
operated local tour operators, we are able to exercise greater control over the quality of our trips and utilize years of data on travel preference to
design more suitable products for consumers. As of February 28, 2019, we operate our own local tour operators in 25 domestic destinations and 4
international destinations.
We have limited experience in operating our self-operated local tour operators. The local leisure travel industry is highly fragmented, so
our self-operated local tour operators may encounter fierce competition from peers and we may not generate the expected profits. Furthermore, if
any destinations where we have self-operated local tour operators are negatively affected by external events such as earthquake, such events may
negatively affect the business of our self-operated local tour operator as it will be difficult for the affected self-operated local tour operators to
change the pre-arranged itineraries of the customers. In addition, we may not be able to adequately control and ensure the quality of service
provided by the tour guides directly serving our customers, in particular the tour guides working for us on a contract basis. If our tour guides fail to
provide high quality services in a timely manner to our customer or violate any applicable PRC laws and regulations, or in the case of customer
injury or death due to the negligence or misconduct of our tour guides, we may be liable for compensation, which may adversely affect our
reputation, business, financial condition and results of operations.
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 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.
12
The Tourism Law and the Measures for Administration of the Overseas Tours of Chinese Citizens may reduce the demand of organized tours
and materially and adversely affect our business and results of operations.
On April 25, 2013, the Standing Committee of the National People’s Congress promulgated the Tourism Law, which became effective as
of October 1, 2013 and was amended in 2016 and 2018, respectively. On May 27, 2002, the State Council promulgated the Measures for the
Administration of the Overseas Tours of Chinese Citizens which became effective as of July 1, 2002 and was amended in 2017. The Tourism Law
and the Measures for the Administration of the Overseas Tours of Chinese Citizens impose more stringent restrictions on tour operators. Pursuant to
the Tourism Law and the Measures for the Administration of the Overseas Tours of Chinese Citizens, 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 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 and the Measures for the
Administration of the Overseas Tours of Chinese Citizens, 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.
The E-Commerce Law may significantly increase our compliance cost.
In August 2018, the Standing Committee of the National People’s Congress promulgated the PRC E-commerce Law, which became
effective in January 2019. The E-commerce Law strengthens the regulation on E-commerce operators relating to consumer protection, personal data
protection and intellectual property rights protection. As an e-commerce operator, we are required under the E-commerce Law, (1) to refrain from
conducting false or misleading commercial promotion by fabricating transactions, making up user comments or otherwise, to defraud or mislead
consumers, (2) to allow consumer to opt out of search results targeting his or her personally characteristics such as hobbies and shopping patterns
and simultaneously show the consumers with options not targeting his or her personally characteristics, (3) to alert consumers of tie-in sale of
commodities or services, and shall not set the tied-in commodities or services as a default option, (4) to obtain and maintain business license and
other applicable licenses as required, and disclose information of such license at our front-page, (5) to clearly detail the refund procedure for the
deposit we received from customers, and not set any unreasonable conditions to refund, (6) to take the risks and responsibilities in the transportation
of the products, unless the consumer chooses a courier logistics service provider other than the default service provider, etc.
We have adopted the required measures to keep our current practice in line with the requirements under the E-Commerce Laws. However,
the competent PRC government may promulgate implementation rules under the E-Commerce Law and may deem our current measures not
sufficient under the E-Commerce Law and its implementation rules. If we are required to adopt additional measures to comply with the
E-Commerce Law and its implementation rules, our compliance cost would increase significantly, and 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.
14
The successful operation of our business depends upon the performance and reliability of the Internet infrastructure and telecommunications
networks in China.
Our business depends on the performance and reliability of the Internet infrastructure and telecommunications networks in China. Almost
all access to the Internet is maintained through state-owned telecommunications operators under the administrative control and regulatory
supervision of the Ministry of Industry and Information Technology of the PRC, or the MIIT. In addition, the national networks in China are
connected to the Internet through international gateways controlled by the PRC government. These international gateways are the only channels
through which domestic users can connect to the Internet. We rely on a limited number of telecommunications service providers, primarily China
Telecom and China Unicom, to provide us with data communications capacity. We, our customers or travel suppliers, may not have access to
alternative networks in the event of disruptions, failures or other problems with China’s Internet infrastructure. With the expansion of our business,
we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our online platform. However, we have no
control over the costs of the services provided by telecommunications service providers. If the prices we pay for telecommunications and Internet
services rise significantly, our results of operations may be materially and adversely affected. If Internet access fees or other charges to Internet
users increase, the number of Internet users may decline and our business may be harmed. Moreover, if we are not able to renew services
agreements with the telecommunications carriers when they expire and are not able to enter into agreements with alternative carriers on
commercially reasonable terms or at all, the quality and stability of our online platform may be adversely affected.
We are subject to payment-related risks.
We enable our customers to make payments through our website by working with various third-party online payment processing service
providers. As we rely on third parties to provide payment processing services, including processing payments made with credit cards and debit
cards, it could disrupt our business if these companies become unwilling or unable to provide these services to us. We may be subject to human
error, fraud and other illegal activities in connection with third-party online payment services. If our data security systems are breached or
compromised, we may lose our ability to accept credit and debit card payments from our customers, and we may be subject to claims for damages
from our customers and third parties, all of which could adversely and materially affect our reputation as well as our results of operations.
If we fail to adopt new technologies or adapt our online platform and management systems to changing user requirements, increasing traffic or
emerging industry standards, our business may be materially and adversely affected.
The online travel industry is subject to rapid technological changes. To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online platform. The online travel industry is also characterized by rapid technological evolution
and changes in customer requirements and preferences. Our success will depend, in part, on our ability to identify, develop, acquire or license
leading technologies useful in our business and respond to technological advances and emerging industry standards and practices in a cost-effective
and timely manner. The development of our online platform and other proprietary technology entails significant technical and business risks. In
addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require
substantial expenditures to modify or adapt our infrastructure. We may not be able to use new technologies effectively or adapt our online platform,
proprietary technologies and operating systems to the requirements of our customers and travel suppliers or emerging industry standards. If we are
unable to adapt in a cost-effective and timely manner to changing market conditions or user requirements, whether for technical, legal, financial, or
other reasons, our business may be materially and adversely affected.
Our business may be harmed if we are unable to upgrade our systems and infrastructure quickly enough to accommodate increasing traffic
levels, or to avoid obsolescence, or successfully integrate any newly developed or purchased technologies with our existing systems. Capacity
constraints could cause unanticipated system disruptions, slower response times, poor customer experience, impaired quality and speed of
reservations and confirmations and delays in reporting accurate financial and operating information. These factors could cause us to lose customers.
Additionally, we will continue to upgrade and improve our technology infrastructure to support our business growth. However, we cannot assure
you that we will be successful in executing these system upgrades and improvement strategies. In particular, our systems may experience
interruptions during upgrades, and any new technologies or infrastructures may not be fully integrated with our existing systems on a timely basis,
or at all. If our existing or future technology infrastructure does not function properly, it could cause system disruptions and slow response times
that affect data transmission, which in turn could materially and adversely affect our business.
15
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. 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, expose us to legal claims, and adversely affect our
operating results.
In addition, our security measures may not be sufficient to prevent security breaches. Any systems failure or compromise of our security
that results in the unauthorized access to or release of our customers’ data could significantly limit the delivery of our products and services, as well
as harm our reputation and brand and, therefore, our business. We spend significant resources on technology and product development to protect
against leakage of user information and other security breaches. Nonetheless, given its great commercial value, our customer data may still likely to
be misused by third-parties, which could expose us to legal and regulatory risks and seriously harm our business.
On November 7, 2016, the Standing Committee of the National People’s Congress issued the Cyber Security Law, which came into effect
on June 1, 2017. The Cyber Security Law, effective on June 1, 2017, stipulates that a network operator, including internet information service
provider among others, must adopt technical measures and other necessary measures in accordance with the applicable laws and regulations as well
as compulsory national and industrial standards to safeguard the safety and stability of network operations, effectively respond to network security
incidents, prevent illegal and criminal activities, and maintain the integrity, confidentiality and availability of network data. Although we take
measures to comply with the Cyber Security Law and the applicable laws, regulations and standards, and we believe our current business operation
is in line with the requirements under the Cyber Security Law and the applicable laws, regulations and standards, there can be no assurance that our
measures will be effective and sufficient under the Cyber Security Law and the applicable laws, regulations and standards. In addition, if we were
found by the regulatory authorities to have violated the Cyber Security Law and the applicable laws, regulations and standards, we would be subject
to warnings, fines, confiscation of illegal revenue, revocation of licenses, cancellation of filings, shutdown of our platform or even criminal liability
and our business, results of operations and financial condition would be materially adversely affected. Furthermore, in light of the evolving
regulatory framework of China for the protection of information in cyberspace, we may be subject to uncertainties of and adjustments to our
business operations, which may incur additional operating expenses and adversely affect our results of operations and financial condition.
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.
16
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.
17
We may not be able to identify suitable future acquisition or investment candidates or alliance partners. Moreover, there is no assurance
that such alliances or acquisitions will achieve our intended objectives or benefits. Even if we identify suitable candidates or partners, we may be
unable to complete an acquisition, investment or alliance on terms commercially acceptable to us. If we fail to identify appropriate candidates or
partners, or complete desired acquisitions, investments or alliances, we may not be able to implement our strategies effectively or efficiently, and
our overall profitability and growth plans may be adversely affected.
If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations or
prevent fraud or fail to meet our reporting obligations, and investor confidence and the market price of our ADSs may be materially and
adversely affected.
We are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that we include a report from
management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F. In addition, our independent
registered public accounting firm must report on the effectiveness of our internal control over financial reporting.
Our management has concluded that our internal control over financial reporting was effective as of December 31, 2018. 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, 2018. However, if we fail to maintain the effectiveness of
our internal control over financial reporting, we may not be able to conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control over financial reporting is necessary for us to
produce reliable financial reports. As a result, any failure to maintain effective internal control over financial reporting could result in the loss of
investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our ADSs. Furthermore,
we may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-
Oxley Act and other requirements going forward.
We have limited business insurance coverage in China.
Insurance companies in China offer limited business insurance products. Business disruption insurance is available to a limited extent in
China, but we have determined that the risks of disruption, the cost of such insurance and the difficulties associated with acquiring such insurance
make it commercially impractical for us to have such insurance. We maintain insurance coverage for travel company liabilities, but we do not
maintain insurance coverage for business disruptions and would have to bear the costs and expenses associated with any such events out of our own
resources.
We may need additional capital, and financing may not be available on terms acceptable to us, or at all.
Although we believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our
anticipated cash needs for at least the next 12 months. We may require additional cash resources due to changed business conditions or other future
developments, including any marketing initiatives or investments we may decide to pursue. If these resources are insufficient to satisfy our cash
requirements, we may seek to obtain a credit facility or sell additional equity or debt securities. The sale of additional equity securities could result
in dilution of our existing shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in
operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms
acceptable to us, if at all.
We have granted share options and restricted shares, and may grant share options and other share-based awards in the future, which may
materially increase our net loss.
We adopted an incentive compensation plan in 2008, or the 2008 Plan, which permits the granting of options to purchase our ordinary
shares and restricted shares. We also adopted a separate incentive compensation plan in 2014, or the 2014 Plan, which permits the granting of
options to purchase our ordinary shares, restricted shares and restricted share units. In particular, our 2014 Plan contains an evergreen provision
which allows us to automatically increase the maximum aggregate number of ordinary shares reserved under the 2014 Plan to 5% of the then-issued
and outstanding shares on an as-converted basis without shareholder approval, if and whenever the shares reserved in the 2014 Plan account for less
than 1% of the total then-issued and outstanding shares on an as-converted basis. For more details regarding the 2008 Plan and the 2014 Plan, see
“Item 6.B. Directors, Senior Management and Employees—Compensation.” As of February 28, 2019, there were options to acquire 3,881,334
ordinary shares outstanding under the 2008 Plan, and options to acquire 20,892,957 ordinary shares and 208,176 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.
18
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 prohibited from owning more than 50% of the equity interest in any
PRC entity conducting value-added telecommunications business, except for online data processing and transaction processing business (operational
e-commerce), in which foreign investors are allowed to hold up to 100% of the equity interest. 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.
19
In or around September 2011, various media sources reported that the China Securities Regulatory Commission, or the CSRC, had
prepared a report proposing regulating the use of variable interest entity structures, such as ours, in industry sectors subject to foreign investment
restrictions in China and overseas listings by China-based companies. However, it is unclear whether the CSRC officially issued or submitted such a
report to a higher level government authority or what any such report provides, or whether any new PRC laws or regulations relating to variable
interest entity structures will be adopted or if adopted, what they would provide.
If our ownership structure, contractual arrangements and business of our company, our PRC subsidiaries or our consolidated affiliated
entities are found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or
approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating
our income or the income of our PRC subsidiaries or consolidated affiliated entities, revoking the business licenses or operating licenses of our PRC
subsidiaries or consolidated affiliated entities, shutting down our servers or blocking our online platform, discontinuing or placing restrictions or
onerous conditions on our operations, requiring us to undergo a costly and disruptive restructuring, restricting or prohibiting our use of proceeds
from our earlier initial public offering and the related concurrent private placement as well as our subsequent private placement in December 2014,
May 2015 and November 2015 to finance our business and operations in China, and taking other regulatory or enforcement actions that could be
harmful to our business. Any of these actions could cause significant disruption to our business operations and severely damage our reputation,
which would in turn materially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in
our inability to direct the activities of any of our consolidated affiliated entities that most significantly impact its economic performance, and/or our
failure to receive the economic benefits from any of our consolidated affiliated entities, we may not be able to consolidate the entity in our
consolidated financial statements in accordance with U.S. GAAP.
Substantial uncertainties exist with respect to the interpretation and implementation of the newly adopted PRC Foreign Investment Law and
how it may impact the viability of our current corporate structure, corporate governance and business operations.
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.” The MOC published a
discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 draft PRC Foreign Investment Law, according to which,
variable interest entities that are controlled via contractual arrangements would be deemed as FIEs, if they are ultimately "controlled" by foreign
investors. In March 2019, the PRC National People’s Congress promulgated the Foreign Investment Law, or the 2019 PRC Foreign Investment
Law, which will become effective on January 1, 2020 and will replace the major existing laws and regulations governing foreign investment in the
PRC. Pursuant to the 2019 PRC Foreign Investment Law, “foreign investments” refer to investment activities conducted by foreign investors
directly or “indirectly” in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in
the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and
interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv)
investment in other methods as specified in laws and administrative regulations, or as stipulated by the State Council. Although the 2019 PRC
Foreign Investment Law does not use the concept of “control” in determining whether a company should be considered as a foreign-invested
enterprise, nor does it explicitly provide the VIE structure as a method of foreign investment, as the 2019 PRC Foreign Investment Law is newly
adopted and relevant government authorities may promulgate more laws, regulations or rules on the interpretation and implementation of the 2019
PRC Foreign Investment Law, the possibility can’t be ruled out that the concept of “control” as stated in the 2015 Draft PRC Foreign Investment
Law may be reimposed, or the “variable interest entity” structure adopted by us may be deemed as a method of foreign investment by, any of such
future laws, regulations and rules, which cause significant uncertainties as to whether our VIE structures would be treated as a method of foreign
investment. If our VIE structure would be deemed as a method of foreign investment under any of such future laws, regulations and rules, and any
of our businesses operation would fall in the “negative list” for foreign investment that is subject to any foreign investment restrictions or
prohibitions, we would be required to take further actions to comply with such laws, regulations and rules, which may materially and adversely
affect our current corporate structure, corporate governance, business, financial conditions and results of operations.
20
The 2019 PRC Foreign Investment Law requires foreign investors or applicable FIEs to report investment information to government
authority. Although the 2019 PRC Foreign Investment Law does not specify the form, content, scope and frequency of such information reporting, it
imposes up to RMB 500,000 monetary fines on non-compliance of such information report obligations. The PRC governmental authorities may
promulgate implementation rules to further clarify the detailed information reporting requirements on foreign investors and the applicable FIEs. In
that case, our current corporate governance practices and business operations may need to be adjusted to comply with the information reporting
requirements, which would significantly increase our compliance costs, and have a material and adverse effect on our current corporate structure,
corporate governance, business, financial conditions and results of operations.
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.
21
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, who is our founder, director and beneficial owner, Messrs. Haifeng Yan, who was our co-founder and is our director and beneficial owner,
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.
22
If Nanjing Tuniu becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy its assets, which could
materially and adversely affect our business.
To comply with PRC laws and regulations relating to foreign ownership restrictions in the online value-added telecommunications
business, we hold our ICP license and operate our business through contractual arrangements with Nanjing Tuniu as well as its shareholders. As part
of these arrangements, Nanjing Tuniu holds assets that are important to the operation of our business.
We do not have priority pledges or liens against Nanjing Tuniu’s assets. As a contractual and property right matter, this lack of priority
pledges and liens has remote risks. If Nanjing Tuniu undergoes an involuntary liquidation proceeding, third-party creditors may claim rights to some
or all of its assets and we may not have priority against such third-party creditors on Nanjing Tuniu’s assets. If Nanjing Tuniu undergoes a voluntary
liquidation, we may take part in the liquidation procedures as a general creditor under the PRC Enterprise Bankruptcy Law and recover any
outstanding liabilities owed by Nanjing Tuniu to Beijing Tuniu under the cooperation agreement between them. To ameliorate the risks of an
involuntary liquidation proceeding initiated by a third-party creditor, we closely monitor the operations and finances of Nanjing Tuniu through
carefully designed budgetary and internal controls to ensure that Nanjing Tuniu is well capitalized and is highly unlikely to trigger any third party
monetary claims in excess of its assets and cash resources. Furthermore, Beijing Tuniu has the ability, if necessary, to provide financial support to
Nanjing Tuniu to avoid such an involuntary liquidation.
If the shareholders of Nanjing Tuniu were to attempt to voluntarily liquidate Nanjing Tuniu without obtaining our prior consent, we could
effectively prevent such unauthorized voluntary liquidation by exercising our right to request Nanjing Tuniu’s shareholders to transfer all of their
equity interests to a PRC entity or individual designated by us in accordance with the purchase option agreement with the shareholders of Nanjing
Tuniu, to the extent permitted by PRC laws. In the event that the shareholders of Nanjing Tuniu initiate a voluntary liquidation proceeding without
our authorization or attempt to distribute the retained earnings or assets of Nanjing Tuniu without our prior consent, we may need to resort to legal
proceedings to enforce the terms of the contractual agreements. Any such legal proceeding may be costly and may divert our management’s time
and attention away from the operation of our business, and the outcome of such legal proceeding would be uncertain.
Risks Related to Doing Business in China
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
The PRC legal system is based on written statutes. Unlike common law systems, it is a system in which legal cases have limited value as
precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic
matters in general. The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms
of foreign or private-sector investment in China. Our PRC subsidiaries and consolidated affiliated entities are subject to various PRC laws and
regulations generally applicable to companies in China. However, since these laws and regulations are relatively new and the PRC legal system
continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws,
regulations and rules involve uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC
administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more
difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal
systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely
manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after
the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and
procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business
and impede our ability to continue our operations.
23
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and
operations.
Our business operations are based in China. Accordingly, our business, financial condition, results of operations and prospects may be
influenced to a significant degree by economic, political and social conditions or government policies in China generally and by continued economic
growth in China as a whole.
China’s economy differs from the economies of most developed countries in many respects, including the level of government
involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has
implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of
productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in
China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry
development by imposing industrial policies. The PRC government also exercises significant control over the PRC economic growth through
allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment
to particular industries or companies.
While China’s economy has experienced significant growth over the past decades, growth has been uneven, both geographically and
among various sectors of the economy, and in the recent years, the growth has been slowing down. Some of the government measures may benefit
the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely
affected by government control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese
economy may contribute to higher inflation, which could adversely affect our financial condition and results of operations. For example, certain
operating costs and expenses, such as employee compensation and office operating expenses, may increase as a result of higher inflation.
The PRC government regulates travel and other related industries. If we fail to obtain or maintain all pertinent permits and approvals or if the
PRC government imposes more restrictions on these industries, our business may be adversely affected.
We are required to obtain applicable permits or approvals from regulatory authorities to conduct our business activities. See “Item 4.B.
Information on the Company—Business Overview—PRC Regulation.” If we fail to obtain or maintain any of the required permits or approvals in
the future, we may be subject to various penalties, such as fines or suspension of operations in these regulated businesses, which could severely
disrupt our business operations. As a result, our financial condition and results of operations may be adversely affected.
Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes. Such
classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and would have a material adverse effect
on our results of operations and the value of your investment.
Under the PRC Enterprise Income Tax Law, or the EIT Law, that became effective on January 1, 2008 and was amended in February 2017
and December 2018, respectively, 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 and was amended in December 2017 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.
24
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.
According to the Announcement of the SAT on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by
Non-Resident Enterprises (“Bulletin 7”) promulgated by the SAT in February 2015, if a non-resident enterprise transfers the equity interests of a
PRC resident enterprise indirectly by transfer of the equity interests of an offshore holding company (other than a purchase and sale of shares issued
by a PRC resident enterprise in public stock market ) without a reasonable commercial purpose, the PRC tax authorities have the discretion to
reassess the nature of the transaction and the indirect equity transfer will be treated as a direct transfer. As a result, gains derived from such transfer,
which means the equity transfer price minus the cost of equity, will be subject to PRC withholding tax at a rate of up to 10%. Under the terms of
Bulletin 7, the transfer that meets all of the following conditions shall be directly deemed as having no reasonable commercial purposes: (i) more
than 75% of the value of the equity interests of the offshore holding company are directly or indirectly derived from PRC taxable properties; (ii) at
any time during the year before the indirect transfer, over 90% of the total properties of the offshore holding company are investments within PRC
territory, or in the year before the indirect transfer, over 90% of the offshore holding company's revenue is directly or indirectly derived from PRC
territory; (iii) the function performed and risks assumed by the offshore holding company are insufficient to substantiate its corporate existence; or
(iv) the foreign income tax imposed on the indirect transfer is lower than the PRC tax imposed on the direct transfer of the PRC taxable properties.
There is uncertainty as to the interpretation and application of Bulletin 7. If an Indirect Transfer occurs for us, we and our non-PRC
resident investors may be at risk of being taxed under Bulletin 7, and we may be required to expend valuable resources to comply with Bulletin 7 or
to establish that we should not be taxed under Bulletin 7.
25
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 State Administration of Market Regulation, or SAMR, 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.
26
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, since it is unclear how SAFE Circular 37 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.
27
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 and our consolidated affiliated entities.
Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries and PRC consolidated affiliated entities,
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 and PRC consolidated affiliated entities only through loans or capital contributions or to establish new PRC subsidiaries or new PRC
consolidated affiliated entities, subject to applicable government registration and approval requirements. Currently, there is no statutory limit to the
amount of funding that we can provide to our PRC subsidiaries through capital contributions. However, the maximum amount we can loan to our
PRC subsidiaries and consolidated affiliated entities is subject to statutory limits. According to current PRC laws and regulations, we can provide
funding to our PRC subsidiaries through loans of up to either (i) the amount of the difference between the respective registered total investment
amount and registered capital of each of our PRC subsidiaries, or the Total Investment and Registered Capital Balance, or (ii) two times, or the then
applicable statutory multiple, the amount of their respective net assets, calculated in accordance with PRC GAAP, or the Net Assets Limit, at our
election. We may also fund our PRC consolidated affiliated entities through cross-border loans and the maximum amount would be their respective
Net Assets Limit. Increasing the Total Investment and Registered Capital Balance of our PRC subsidiaries is subject to governmental procedures
and may require a PRC subsidiary to increase its registered capital at the same time. If we choose to make a loan to a PRC subsidiary or PRC
consolidated affiliated entity based on its Net Assets Limit, the maximum amount we would be able to loan to the relevant PRC subsidiary or PRC
consolidated affiliated entity would depend on the relevant PRC entity’s net assets and the applicable statutory multiple at the time of calculation.
PRC laws and regulations may also impose more stringent limitations to cross-border loans, which will also have negative impact on our ability to
fund our PRC entities.
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 June 2016, SAFE promulgated Notice on Reforming and Standardizing the Administrative Provisions on Capital Account Foreign
Exchange Settlement which further stipulates that foreign-invested enterprises shall not use Renminbi fund converted from foreign exchange capital
for providing loans to non-affiliated enterprises, except as otherwise expressly permitted under its business scope. In addition, SAFE strengthened
its oversight of the flow and use of the Renminbi capital converted from foreign currency registered capital of a foreign-invested company. The
business scopes of Beijing Tuniu and Tuniu (Nanjing) Information Technology Co., Ltd., or Tuniu NJ Information Technology, include research
and development of computer software, network information technology products, computer application systems, e-commerce systems, network
security systems and computer system integration; technology services, consulting and transfers; sales of self-developed products; investment
consulting; business information consulting; and conference services and public relations advice. Beijing Tuniu and Tuniu NJ Information
Technology may only use Renminbi converted from foreign exchange capital contribution for activities within their respective approved business
scope. In addition, the use of such Renminbi capital may not be altered without SAFE approval, and such Renminbi capital may not in any case be
used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of these Circulars could result in severe monetary or
other penalties. If we convert the net proceeds we receive from our earlier initial public offering and the concurrent private placement as well as our
subsequent private placement into Renminbi pursuant to these Circulars, our use of Renminbi funds for general corporate purposes will be within
the business scopes of our PRC subsidiaries.
28
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 9 on February 3, 2018, which
became effective from April 2018 and replaced Circular 601 issued by SAT on October 27, 2009 and the Announcement of the SAT regarding
Recognition of “Beneficial Owner” under Tax Treaties, or Announcement 30 issued on June 29, 2012. Circular 9 stipulates that in determining
whether a non-resident enterprise has the status as a beneficial owner, comprehensive analysis shall be conducted based on the factors provided in
Circular 9 and the actual circumstances of the specific case shall be taken into consideration. Specifically, Circular 9 expressly excludes an agent or
a designated payee from being considered as a “beneficial owner.” As a result, although our PRC subsidiaries, Beijing Tuniu and Tuniu NJ
Information Technology, are currently wholly owned by our Hong Kong subsidiary, Tuniu (HK) Limited, we cannot assure you that we would be
entitled to the tax treaty benefits and enjoy the favorable 5% rate applicable under the Hong Kong Tax Treaty. If Tuniu (HK) Limited is not
recognized as the beneficial owner of the dividends paid to it by Beijing Tuniu or Tuniu NJ Information Technology, such dividends will be subject
to a normal withholding tax of 10% as provided by the EIT Law.
Discontinuation or revocation of any of the preferential tax treatments and government subsidies or imposition of any additional taxes or
surcharges could adversely affect our financial condition and results of operations.
Our PRC subsidiaries are incorporated in the PRC and governed by applicable PRC tax laws and regulations. The EIT Law and its
Implementation Rules have adopted a uniform statutory enterprise income tax rate of 25% to all enterprises in China, including foreign-invested
enterprises. The EIT Law and its Implementation Rules also permit qualified “high and new technology enterprises,” or HNTEs, to enjoy a
preferential enterprise income tax rate of 15% upon filing with the relevant tax authorities. The qualification as a HNTE is generally effective for a
term of three years and the renewal of such qualification is subject to review by the relevant authorities in China. Nanjing Tuniu obtained its HNTE
certificate in 2010 with a valid period of three years and successfully renewed such certificate in December 2013 for additional three years and
December 2016 for another three years. Therefore, Nanjing Tuniu is eligible to enjoy a preferential tax rate of 15% from 2016 to 2018 to the extent
it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant EIT filing procedures with the
relevant tax authority. 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.
29
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. Since October 1, 2016,
Renminbi has joined the International Monetary Fund (IMF)’s basket of currencies that make up the Special Drawing Right (SDR), along with the
U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, Renminbi has depreciated significantly in the backdrop
of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards
interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate
system and there is no guarantee that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is
difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the 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.
30
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:
(cid:120)
(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 the stage of development and may restrict our ability to expand our online business.
Online payment systems in China are at the 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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
consumer dependence on traditional means of commerce;
inexperience with the Internet as a sales and distribution channel;
inadequate development of the necessary infrastructure;
concerns about security, reliability, cost, ease of deployment, administration and quality of service associated with conducting business
and settling payment over the Internet;
31
(cid:120)
(cid:120)
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.
The PRC regulatory and enforcement regime with regard to data security and data protection is evolving. For example, the Cyber Security Law sets
high requirements for the operational security of facilities deemed to be part of the PRC’s “critical information infrastructure.” New laws or
regulations concerning data protection, or the interpretation and application of existing consumer and data protection laws or regulations, which is
often uncertain and in flux, may be inconsistent with our practices. If so, in addition to the possibility of violation of laws and fines imposed by
regulatory authorities, this could result in an order requiring that we change our practices, which could have an adverse effect on our business and
operating results. Complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices
in a manner materially adverse to our business.
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.
32
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 subject to
laws in the United States pursuant to which the PCAOB conducts regular inspections to assess their compliance with the relevant professional
standards. Because our auditor is located in the Peoples’ Republic of China, a jurisdiction where the PCAOB has been 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. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by
the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. However, it remains
unclear what further actions the SEC and PCAOB will take to address the problem.
PCAOB’s inspections of other firms outside China have identified deficiencies in those firms’ audit procedures and quality control
procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB’s 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.
33
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 these accounting firms failed to meet
the specified criteria during a period of four years starting from the settlement date, or if there was a failure in the process between the SEC and the
CSRC, the SEC retained authority to impose a variety of additional remedial measures on the accounting firms depending on the nature of the
failure. Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed with
prejudice at the end of four years starting from the settlement date, which was February 6, 2019. We cannot predict if the SEC will further challenge
the four PRC-based accounting firms’ compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results
of such a challenge would result in the SEC imposing penalties such as suspensions. If additional challenges are imposed on the Chinese affiliates of
the “big four” accounting firms, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange
Act.
In the event the Chinese affiliates of the “big four” become subject to additional legal challenges by the SEC or PCAOB, depending upon
the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of
their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the
Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor
uncertainty regarding PRC-based, United States-listed companies and the market price of our ADSs may be adversely affected.
If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were
unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements
could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting
of our ordinary shares from the Nasdaq Global Market or deregistration from the SEC, or both, which would substantially reduce or effectively
terminate the trading of our ADSs in the United States.
Risks Related to Our ADSs
The trading prices of our ADSs have fluctuated and may continue to be volatile.
The trading prices of our ADSs have fluctuated since we first listed our ADSs. From the time our ADSs became listed on Nasdaq on May
9, 2014 through April 1, 2019, the trading price of our ADSs has ranged from US$24.99 to US$4.34 per ADS, and the last reported trading price on
April 1, 2019 was US$4.82 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:
(cid:120)
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;
34
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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 4.71% of our outstanding ordinary shares as of
February 28, 2019, representing 33.06% of our total voting power. As of February 28, 2019, our directors and officers beneficially own an aggregate
of 72.5% of our outstanding shares representing 68.8% 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.”
35
The sale or availability for sale of substantial amounts of our ADSs could adversely affect their market price.
Sales of substantial amounts of our ADSs in the public market, or the perception that these sales could occur, could adversely affect the
market price of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. As of February 28, 2019, we
had 389,331,544 ordinary shares outstanding, comprising of (i) 371,958,044 Class A ordinary shares (including 20,256,207 Class A ordinary shares,
represented by 6,752,069 ADSs, repurchased and reserved for the future exercise of options or the vesting of other awards under the 2008 Plan and
the 2014 Plan), and (ii) 17,373,500 Class B ordinary shares. Among these shares, 86,577,000 Class A ordinary shares are in the form of ADSs,
which are freely transferable by persons other than our affiliates without restriction or additional registration under the Securities Act. The
remaining Class A ordinary shares outstanding will be available for sale, subject to volume and other restrictions as applicable under Rules 144 and
701 under the Securities Act. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other
shareholder or the availability of these securities for future sale will have on the market price of our ADSs. In addition, certain holders of our Class
B ordinary shares are entitled to certain registration rights in the event that specified conditions are met, including demand registration rights,
piggyback registration rights, and Form F-3 or Form S-3 registration rights. Registration of these shares under the Securities Act would result in
these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of
these registered shares in the public market, or the perception that such sales could occur, could cause the price of our ADSs to decline.
We may be classified as a passive foreign investment company for United States federal income tax purposes, which could result in adverse
United States federal income tax consequences to United States investors in the ADSs or ordinary shares.
Under United States federal income tax law, we will be classified as a “passive foreign investment company,” or PFIC, for any taxable
year, if either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of
our assets (as determined on the basis of a quarterly average) during such year produce or are held for the production of passive income (the “asset
test”). Although the law in this regard is unclear, we treat Nanjing Tuniu and its subsidiaries as being owned by us for United States federal income
tax purposes, not only because we exercise effective control over their operations, but also because we are entitled to substantially all of their
economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements.
No assurance can be given with respect to our PFIC status for the taxable year ended December 31, 2018 or any future taxable year. The
determination of whether we are or will become a PFIC is uncertain, because it 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 increase relative to our revenue from
activities that produce non-passive income, or where we determine not to deploy cash for active purposes, our risk of becoming classified as a PFIC
will 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 being or 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. 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 (and generally less adverse than) the general tax treatment for PFICs. For more information, see “Item 10.E.
Additional Information—Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”
36
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 (2018 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:
(cid:120)
(cid:120)
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 (2018 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.
37
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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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.
38
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.
39
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.
40
In November 2015, we entered into a share subscription agreement with HNA Tourism Group, or HNA Tourism, pursuant to which an
affiliate of HNA Tourism purchased 90,909,091 newly issued Class A ordinary shares from us for US$500 million in January 2016.
During the year ended December 31, 2015, we acquired 100%, 100%, 75% and 80% of equity interests of four offline travel agencies,
respectively. We gained access to the expanding Taiwan tourism market and improved the capability in the direct procurement of products with
these acquisitions. The total purchase price was RMB115.5 million, which included cash consideration of RMB100.2 million and RMB15.3 million,
the fair value of contingent cash consideration to be made based on the achievement of certain revenue and profit target over the next three to four
years.
During the year ended December 31, 2016, we acquired 100% of equity interests of one offline travel agency, to further expand our oversea
tourism market and promote our destination service. The total purchase price was RMB28.1 million (US$4.0 million), which included cash
consideration of RMB16.5 million (US$2.4 million) and RMB11.6 million (US$1.6 million), the fair value of contingent cash consideration to be
made based on the achievement of certain revenue and profit target over the next four years.
During the year ended December 31, 2018, we acquired 80% of equity interests of one offline travel agency, to further expand our overseas
tourism market and promote our destination local tour operator service. The total purchase price was RMB20.2 million (US$2.9 million), which
included cash consideration of RMB9.8 million (US$1.4 million) and RMB10.4 million (US$1.5 million), the fair value of contingent cash
consideration, as at the acquisition date, to be made based on the achievement of net profit target over the next four years.
Tuniu Corporation established a wholly owned PRC subsidiary, Beijing Tuniu, in September 2008. Tuniu (HK) Limited established
another wholly owned PRC subsidiary, Tuniu (Nanjing) Information Technology Co., Ltd., in August 2011, and acquired 100% of the equity
interests in Beijing Tuniu in September 2011. Through Beijing Tuniu, we obtained control over Nanjing Tuniu by entering into a series of
contractual arrangements, including purchase option agreement, equity interest pledge agreement, shareholders’ voting rights agreement, powers of
attorney and cooperation agreement, with Nanjing Tuniu and its shareholders. Nanjing Tuniu holds our ICP licenses as an Internet content provider
and operates our website. Beijing Tuniu International Travel Service Co., Ltd. and Nanjing Tuniu International Travel Service Co. Ltd., both of
which are Nanjing Tuniu’s subsidiaries, hold our operation permits for overseas travel business.
These contractual arrangements allow us to:
(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
travellers. 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 travellers 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 travellers.
41
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 travel suppliers to ensure quality and reliability. We have developed our proprietary supply
chain management system—N-Booking system—to streamline our interactions with travel suppliers, allowing them to receive booking information
real-time, through the web or mobile devices to more efficiently manage travel products and better understand customer preferences. In 2016, we
upgraded our supplier management system and data analytics system in order to better facilitate the cooperation between the suppliers and us. In
addition, to further broaden the range of our products and better serve our customers, we enter into strategic agreements with various industry
partners from time to time. For example, in December 2014, we entered into a strategic cooperation agreement with Ctrip.com International, Ltd., a
leading travel service provider in China, in order to expand our collaboration on shared travel resources. In November 2015, we formed a strategic
partnership with HNA Tourism, under which HNA Tourism undertook to provide us with its premium airline and hotel resources at a preferential
rate, under fair competition market rules.
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
travellers in China.
Packaged Tours
Packaged tours offered on our platform consist of organized tours and self-guided tours. Our core strength is in overseas leisure travel
products and services, which contributed over 67% of our packaged tour gross bookings in 2018.
Organized Tours: Organized tours offer the benefits of pre-arranged itineraries, transportations, accommodations, entertainments, meals
and tour guide services. By booking an organized tour on our platform, our customers can achieve cost savings compared to booking each
component separately and enjoy a pleasant and hassle-free travel experience.
Organized tours offered on our platform cover over nearly all of the popular tourist destinations among Chinese travellers, such as Europe,
Japan, Thailand, Middle East, Africa and the United States, as well as all of the popular tourist attractions in China.
Organized tour product portfolio offered on our platform also includes local tours, which mainly consist of weekend getaways and themed
tours, such as water resort 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 lower average gross bookings per trip as compared to other types of organized
tours.
In addition, to address the needs of group travellers who cannot be satisfied with off-the-shelf standard packaged travel products, such as
companies planning travel retreats and families planning group trips, we provide customized tours to cater to such specific travel needs. Our group
travel tour advisors work closely with travel suppliers and our customers to design travel products and itineraries that meet such customers’ unique
needs.
Self-guided Tours: Self-guided tours offered on our platform consist of combinations of flights and hotel bookings and other optional add-
ons, such as airport pick-ups that travellers can choose at their willingness. These products are offered at attractive prices compared to booking each
travel product separately. The self-guided tours target leisure travellers who prefer greater flexibility during their vacations and who do not need
tour guide services. Due to the breadth of travel suppliers that are available on our platform, 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.
42
Other Travel-Related Services
Our other travel-related services comprise mainly of sales of tourist attraction tickets, visa application services, financial services, hotel
booking services, air ticketing services, train ticketing services, bus ticketing services, car rental services and insurance services. We earn a
commission or service fee for 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 Suqian and our offline retail stores 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 travellers to easily search for, compare and place orders for product offerings that best suit their needs. We have well-trained tour advisors
and customer service representatives located at our centralized call center to supplement our online transaction infrastructure by providing our
customers with professional advice and guidance throughout their travel planning and bookings process as well as timely support before and during
their travels. The inclusion of a customer-focused, service network is particularly important to customers of our travel products with high selling
prices as these customers usually demand more assistance and attention in their travel planning.
Our Website
Our website, tuniu.com, provides a one-stop travel platform for our customers to do everything from researching travel destinations to
booking travel products. In addition to our product information such as tour duration, departure time and destination descriptions, our website
features comprehensive travel advice ranging from basic information to professional and user recommendations and travellers’ 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, 2018, we had more than approximately 6 million customer reviews and approximately 90,000 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 420 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, customized tours, cruises, tourist attractions tickets,
self-drive tours, accommodation reservation, and transportation tickets. The customer can also choose to browse through our best-sellers for each of
local tours, domestic tours, overseas tours, self-guided tours , themed tours, hotels, destination activities and tourist attractions tickets.
43
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 travellers, 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 offline retail stores 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 offline retail stores. 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 or APP to check his booking details as well as amend
or cancel his bookings.
Review. After completing his or her trips, a customer is provided with incentives such as coupons to return to our website to write reviews
and travel stories and share his or her experience on our Travelogue forum. This increases transparency regarding our travel product quality and
increases customer stickiness. We regard customer reviews and travel stories, which provide valuable information to potential customers, as
important criteria in assessing the quality and performance of 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 travellers 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 attract our customers towards our online platform.
44
Offline nationwide service network. Our primary call center is located in our headquarter in Nanjing, and we have a regional call center in
Suqian, Jiangsu province dedicated to customer service as well. 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 Customer Care Management (CCM) World
Group and CC-CMM Organization, and we were rewarded the Golden Tone Award from 51CallCenter in the years of 2014, 2015, 2016 and 2018, a
call center and business process outsourcing industry group, for offering outstanding call center and customer service experiences. We were
awarded the Call Center with best user feedback by CAEC in 2017, and the Best Call Center by CCCS in years of 2017 and 2018.
Tour Advisors. Tour advisors are well-trained through in-house training workshops as well as training sessions provided by the 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, 2018, we had over 16,500 travel suppliers available on our platform, which primarily include tour operators, travel
services providers and wholesalers of travel products and services in China. We believe that our ability to enable these 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 the existing travel suppliers. We have a product procurement team who is dedicated to developing and enhancing our
relationships with existing and prospective travel suppliers.
We source a broad range of products from travel suppliers who have significant advantages in the destinations we cover and who offer
travel products at competitive prices, which enhances our ability to attract more customers to our online platform. Our growing customer base in
turn attracts more travel suppliers, creating a virtuous cycle that strengthens our leading market position.
We generally enter into contracts with travel suppliers based on our standard form. Travel suppliers often pay us rebates based on our
business volume. In addition, some of the travel suppliers require prepayments for reserving tour availabilities. Typically, we settle payment with
travel suppliers on a monthly basis, although travel suppliers can also request for an early settlement on a discounted basis. To date, substantially all
of the travel suppliers have sought to pursue continuing cooperation opportunities with us. In order to support and retain suppliers, in November
2014, we entered into framework cooperation agreements with four PRC-based banks under which the banks intend to make available loan facilities
to us or our suppliers. See “—Financial Services” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital
Resources.”
We conduct a rigorous process in qualifying travel suppliers and in selecting their travel products and services to be offered on our
platform. In qualifying a potential travel supplier, we focus on its reputation, product quality, track record, credibility and price competitiveness.
In addition, 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.
45
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 travel suppliers to ensure that customers are provided with high-quality travel products. In addition, we conduct regular
price comparisons for travel products to assess the competitiveness of the pricing of travel products offered on our platform.
Supply Management
We host a major conference event for our travel suppliers each year and present to our travel suppliers our projected travel demand trends.
We also constantly communicate with 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 the
travel suppliers make timely adjustments to procurement plans.
Supplier Quality Control
We have developed product and service provision protocols for travel suppliers to follow. We have offline retail stores throughout China
that help us closely track the performance of travel suppliers in each region. 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 travel suppliers or cease listing their travel products on our platform 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 travel suppliers based on the
popularity, quality and price competitiveness of their travel products. To monitor and further improve the quality of travel suppliers and the products
and services we offer, we proactively collect feedback from our customers after their travels.
B2B distribution
We launched our B2B distribution business in September 2015 and rebranded it to Difeng Cloud in October 2018. Based on Tuniu’s direct
procurement and integration with the supply chain, Difeng Cloud was able to rapidly scale by offering Tuniu’s products and resources to other
distributors within the leisure travel industry. Difeng Cloud currently offers travel products including both packaged tours and other travel-related
products such as air ticketing, hotel reservations, attraction tickets, visa applications and insurance products.
N-Booking System
We have developed a proprietary N-Booking system, accessible via web and mobile, that offers 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. 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 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.
46
Financial Services
We currently offer a range of financial services, which complement our core leisure travel business, mainly to both travellers and travel
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 travellers, we provide travel financing products enabling travellers to travel with an initial
down payment, which has been particularly popular among the young generation of travellers who are more price-sensitive. In addition, we also
offer insurance products to our customers. We used to provide yield enhancement products to individual investors, the provision of which has been
terminated in 2018. For travel suppliers, we provide various types of loans and factoring service that optimize working capital for the selected
suppliers, allowing them to provide high-quality travel products on a larger scale.
Technology
We have built our technology infrastructure with high levels of performance, reliability, scalability and security to ensure superior
customer and supplier experiences. We rely on internally developed proprietary technologies and licensed technologies to manage and improve our
website, mobile platform and management systems. We have a team of engineers dedicated to research and development in the areas of website
operations, mobile platform, search engine, data analytics and supply chain management system.
We believe that an advanced technology platform is vital to our growth and success. In 2018, we obtained ISO 9001:2015 certification for
our quality management system indicating our compliance with internationally recognized standards for quality control.
Product Search
We strive to present relevant and useful search results in a timely fashion to ensure the accuracy, efficiency and synchronism of our search
results. Despite the difficulties in analyzing leisure travel products data, we have developed search technologies that allow us to retrieve, index, filter
and rank real-time product information. We are able to prioritize the search results and display information most suited to our customers’
requirements in a simple and intuitive interface in real-time. Our core search technologies include the following:
Real-time Indexing. Our search infrastructure enables changes in product data to be indexed, processed and reflected in search results on a
real-time basis.
Smart Caching. We maintain a database with massive product information on packaged tours, hotels, flights and other travel-related
services. We have designed an auto-prioritizing method to update the database by ranking popular products based on different criteria, such as
popular cities, most-visited attractions, top-rated products and most-viewed products. Different refreshing frequencies are applied to different
products.
Accuracy Checking. Our accuracy checking software complements our smart caching system and is implemented to display the latest
product information such as prices and product descriptions. When a user clicks on the interested search result, an accuracy checker is triggered to
retrieve the updated product information and present it to the user.
Fuzzy Query Processing. We maintain a dictionary for travel-related keywords in Chinese, where keywords are classified and linked to
each other based on their meanings. We have also developed a query search algorithm based on user inputs to enhance our ability to dissect natural
language queries. Such technologies help us better understand the meanings of queries and to produce the most relevant and useful search results.
We also provide additional search features such as query spelling correction, query suggestion and search by Chinese phonetics (Pinyin).
Big Data Analysis
We gather and analyze customer behavior and data for our procurement, inventory management and marketing purposes. We also provide
selected data to 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.
47
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 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 travel suppliers. Our N-Booking system also allows 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 travellers’ needs. This system is able to combine trip components from different suppliers to provide truly
customized trips, automating and placing in the hands of our customers a function that was previously performed manually. It uses algorithms and
past customer data to filter out unnatural choices and provide customers with relevant choices based on their ascertainable behavior. We believe this
is one of the first systems of its type in China.
Seasonality
Our business experiences fluctuations, reflecting seasonal variations in demand for leisure travel services. Sales of leisure travel products
and services will increase in respect of holiday periods and decrease in respect of off-peak times, while prices of leisure travel products and services
are subject to fluctuation between peak seasons and low seasons. For example, the third quarter of each year generally contributes the highest
percentage of our annual revenues, because many of our customers tend to travel during summer holidays in July and August.
Marketing and Brand Building
We continue to build and maintain 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 have placed a number of
commercials on various television channels across China. 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.
48
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 booking and air ticketing 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, China Citic Bank , Industrial and Commercial Bank of
China, Bank of China, China Everbright Bank, China Merchants Bank and China Guangfa 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 loyalty 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 loyalty program is designed to encourage repeat purchases. Currently, our membership has seven levels. For customers
who meet certain spending thresholds, we upgrade their membership status to the next level, entitling them to further discounts and more points for
their spending. For all customers who have joined our loyalty program, 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 the self-guided tour business, as we sell packaged tours which include flights and hotels, we also compete with airlines and hotels,
which in recent years have made efforts to improve their direct sales. Large, established Internet search engines have also launched applications
offering travel products in various destinations around the world. Factors affecting our competitiveness include, among other things, price,
availability and breadth of choice of travel products and services, brand recognition, customer services, and ease of use, accessibility, security and
reliability of our transaction and service infrastructure.
Some of our current and potential competitors may have greater financial, marketing and other resources than we do. In addition, some of
our competitors may be acquired by, receive investment from or enter into strategic relationships with larger, well-established and well-financed
companies or investors. They may be able to devote greater resources to marketing and promotional campaigns and devote substantially more
resources to website and system development than us. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business and
Industry—We face intense competition and may not be able to compete successfully against existing and new competitors.”
Intellectual Property
Our success and ability to compete depend, in part, upon our ability to establish and adequately protect our intellectual property rights. In
this regard, we rely primarily on a combination of copyright, software registration, trademark, trade secret and unfair competition laws and
contractual rights, such as confidentiality agreements with our employees and others. As of December 31, 2018, we had 61 registered computer
software copyrights, 13 registered patent and 24 registered artwork copyrights in China, and were in the process of applying for 28 patents in China.
In addition, as of December 31, 2018, we had 92 registered domain names that were material to our business, including tuniu.com, and 413
registered trademarks, including 途牛 (the Chinese characters of Tuniu),
and
,
and
in China.
49
Insurance
We maintain various insurance policies to safeguard against risks and unexpected events. We have purchased travel companies’ liability
insurance covering expenses related to accidents caused by us. We have also maintained property insurance policies for our fixed assets covering
losses due to fire, explosion, lightning, storm, landslide, subsidence and aircraft damage.
PRC Regulation
This section sets forth a summary of the significant regulations or requirements that affect our business activities in China or our
shareholders’ rights to receive dividends and other distributions from us.
Regulations on Value-Added Telecommunication Services
The PRC government extensively regulates the telecommunications industry, including the Internet sector. The PRC State Council, the
MIIT, the MOC, the SAMR (formerly the State Administration for Industry and Commerce, or the SAIC), the State Administration of Radio and
Television, or SART, and the State Administration of News and Publication, both of which were split from 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 and amended in February 2016 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.
In March 2009, the MIIT promulgated the Administrative Measures for Telecommunications Business Operating Permit which was
repealed in September 2017 by the 2017 Revision of the Administrative Measures for Telecommunications Business Operating Permit. Pursuant to
the 2017 Revision of the Administrative Measures for Telecommunications Business Operating Permit, there are two types of telecommunication
operating license for operators in China, namely, licenses for basic telecommunications services and licenses for value-added telecommunications
services. The operation scope of the license will specify the permitted activities of the enterprise to which it is granted. An approved
telecommunication services operator must conduct its business in accordance with such specifications.
Pursuant to the Administrative Measures on Internet Information Services, promulgated by the PRC State Council in September 2000, as
amended in January 2011, commercial Internet information services operators must obtain an ICP license, from the relevant government authorities
before engaging in any commercial Internet information services operations within the PRC. Nanjing Tuniu, our consolidated affiliated entity,
obtained ICP licenses issued by the Jiangsu Administration of Telecommunication which will expire in October 2022.
The Internet Electronic Bulletin Service Administrative Measures promulgated by the MIIT in November 2000 require Internet information
services operators to obtain specific approvals before providing BBS services, which include electronic bulletin boards, electronic forums, message
boards and chat rooms. In September 2014, the Internet Electronic Bulletin Service Administrative Measures was repealed by Repealing and
Revising Certain Rules of MIIT. However, in practice, the relevant authorities still require obtaining such approval for the operation of BBS
services. We have applied to the Jiangsu Administration of Telecommunication for and have obtained an approval for the operation of BBS services
on our website.
In addition to the Telecommunications Regulations and the other regulations as disclosed above, the provision of commercial internet
information services on mobile internet applications is regulated by the Administrative Provisions on Mobile Internet Applications Information
Services, which was promulgated by the Cyberspace Administration of China in June 2016. Under the Administrative Provisions on Mobile Internet
Applications Information Services , the providers of mobile internet applications need to, among other things, acquire the relevant qualifications and
comply with other requirements provided by laws and regulations and being responsible for information security.
50
Foreign Investment in Value-Added Telecommunications Services
On March 15, 2019, the National People’s Congress promulgated the 2019 PRC Foreign Investment Law, which will become effective on
January 1, 2020 and will replace the major existing laws and regulations governing foreign investment in the PRC. Pursuant to the 2019 PRC
Foreign Investment Law, “foreign investments” refer to investment activities conducted by foreign investors directly or “indirectly” in the PRC,
which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other
investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the
PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment of other methods as
specified in laws, administrative regulations, or as stipulated by the State Council. Although VIE structure is not explicitly defined as a method of
foreign investment, it remains to be further clarified and detailed on whether VIE Structure will be interpreted to fall under the scope of the
“investment in other methods as specified in laws and administrative regulations, or as stipulated by the State Council”. Please also refer to “Item
3.D. Key Information—Risk Factors—Substantial uncertainties exist with respect to the interpretation and implementation of the newly adopted
PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
According to 2019 PRC Foreign Investment Law, China adopts a system of national treatment plus negative list with respect to foreign
investment administration, and such negative list will be issued by, amended or release upon approval by the State Council, from time to time.Such
negative list is contemplated to consist of a list of industries in which foreign investments are prohibited and a list of industries in which foreign
investments are restricted. Foreign investors would not be allowed to make investments in prohibited industries, while foreign investments must
satisfy certain conditions stipulated in the negative list for investment in restricted industries. Foreign investment and domestic investment in
industries out of the scope of the prohibited industries and restricted industries stipulated in the negative list would be treated equally. The current
entry clearance requirements are set out in the Catalog for the Guidance of Foreign Investment Industries, or the Catalog, which was promulgated by
and amended from time to time by the MOC and the National Development and Reform Commission, with the latest amendment being effective as
of July 2018. The latest Catalog divides the foreign invested industries into two categories, i.e., "Category of Industries Encouraged for Foreign
Investment" and "Special Administrative Measures (Negative List) for Foreign Investment Access," or the "Negative List." Industries not listed in
the Catalog are generally deemed "permitted" for foreign investment. Although the latest Negative List reduced the number of industries that fall
within the Negative List where foreign investment is prohibited or restricted, the value-added telecommunication services industry remains
restricted from foreign investment.
Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises, promulgated by the PRC State Council
in December 2001 and amended in February 2016, the ultimate foreign equity ownership in a value-added telecommunications services provider
may not exceed 50%. Moreover, for a foreign investor to acquire any equity interest in a value-added telecommunication business in China, it must
satisfy a number of stringent performance and operational experience requirements, including demonstrating good track records and experience in
operating value-added telecommunication business overseas. Foreign investors that meet these requirements must obtain approvals from the MIIT
and the MOC or their authorized local counterparts, which retain considerable discretion in granting approvals. Pursuant to publicly available
information, the PRC government has issued telecommunications business operating licenses to only a limited number of foreign-invested
companies, all of which are Sino-foreign joint ventures engaging in the value-added telecommunication business. However, according to the Notice
on Lifting the Restriction to Foreign Shareholding Percentage in Online Data Processing and Transaction Processing Business (Operational
E-commerce) promulgated by the MIIT in June 2015, foreign investors are allowed to hold up to 100% of the equity interest in the online data
processing and transaction processing business (operational e-commerce) in China, while other requirements provided by the Provisions on
Administration of Foreign-Invested Telecommunications Enterprises still apply. In addition, the Approval on Fully Promoting the Comprehensive
Trial Work Plan of Opening-up Service Industry of Beijing issued by the State Council in January 2019, or the State Council Circular 16 lifted the
prohibition of foreign investors’ equity ownership of entities registered in certain areas of Beijing that conduct certain types of value-added
telecommunication businesses.
The MIIT Circular issued in July 2006 reiterated the regulations on foreign investment in telecommunications businesses, which require
foreign investors to set up foreign-invested enterprises and obtain a business operating license for Internet content provision to conduct any value-
added telecommunications business in China. Pursuant to the MIIT Circular, a domestic company that holds an ICP license is prohibited from
leasing, transferring or selling the license to foreign investors in any form, and from providing any assistance, including providing resources, sites or
facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Furthermore, the relevant trademarks and
domain names that are used in the value-added telecommunications business must be owned by the domestic ICP license holder or its shareholders.
The MIIT Circular further requires each ICP license holder to have the necessary facilities for its approved business operations and to maintain such
facilities in the regions covered by its license. In addition, all value-added telecommunications service providers are required to maintain network
and information security in accordance with the standards set forth under relevant PRC regulations.
In light of the aforesaid restrictions, we rely on Nanjing Tuniu, our consolidated affiliated entity, to hold and maintain the licenses
necessary to provide online marketing services and other value-added telecommunications services in China. For a detailed discussion of our
contractual arrangements, please refer to “—C. Organizational Structure.” To comply with these PRC regulations, we operate our website and
value-added telecommunications services through Nanjing Tuniu. Nanjing Tuniu holds our ICP licenses and owns all domain names used in our
value-added telecommunications businesses. Nanjing Tuniu is also the owner of all registered trademarks used in our value-added
telecommunications businesses and is the applicant of all registered trademark applications we are currently making.
Regulations on Information Security and Censorship
The PRC government regulates and restricts Internet content in China to protect state security and ensure the legality of the Internet
content. The National People’s Congress, China’s national legislative body, enacted a Decision on the Safeguarding of Internet Security in
December 2000, as subsequently amended in August 2009, among other things, makes it unlawful to: (1) gain improper entry into a computer or
system of strategic importance; (2) disseminate politically disruptive information; (3) leak state secrets; (4) spread false commercial information; or
(5) infringe intellectual property rights. Pursuant to the Administrative Measures on Internet Information Services and other applicable laws,
Internet content providers and Internet publishers are prohibited from posting or displaying over the Internet content which violates PRC laws and
regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Internet service providers are
required to monitor their websites, including electronic bulletin boards. They may not post or disseminate any content that falls within these
prohibited categories and must remove any such content from their websites. The PRC government may shut down the websites of ICP license
holders that violate any of the above-mentioned content restrictions and revoke their ICP licenses. In addition, the MIIT has published regulations
that subject ICP operators to potential liability for content displayed on their websites and the actions of users and others using their systems,
including liability for violations of PRC laws and regulations prohibiting the dissemination of content deemed to be socially destabilizing. The
Ministry of Public Security has the authority to order any local Internet service provider to block any Internet website at its sole discretion. From
time to time, the Ministry of Public Security has stopped the dissemination over the Internet of information which it believes to be socially
destabilizing.
51
The Ministry of Public Security has promulgated the Administrative Measures for the Security Protection of International Connections to
Computer Information Network in December 1997, as amended in January 2011, that prohibit the use of the Internet in ways which, among other
things, result in a leakage of State secrets or the distribution of socially destabilizing content. Socially destabilizing content includes any content that
incites defiance or violations of PRC laws or regulations or subversion of the PRC government or its political system, spreads socially disruptive
rumors or involves cult activities, superstition, obscenities, pornography, gambling or violence. Under PRC law, state secrets are defined broadly to
include information concerning PRC national defense, state affairs and other matters as determined by the PRC authorities.
In December 2005, the Ministry of Public Security promulgated Provisions on Technological Measures for Internet Security Protection.
These measures and the Administrative Measures on Internet Information Services require all ICP operators to keep records of certain information
about their users (including user registration information, log-in and log-out time, IP address, content and time of listings by users) for at least 60
days and submit the above information as required by laws and regulations. The ICP operators must regularly update information security and
censorship systems for their websites with local public security authorities, and must also report any public dissemination of prohibited content. If
an ICP operator violates these measures, the PRC government may revoke its ICP license and shut down its websites. Pursuant to the Decision on
Strengthening Network Information Protection issued by the Standing Committee of the PRC National People’s Congress in December 2012, ICP
operators must request identity information from users when ICP operators provide information publication services to the users. If ICP operators
come across prohibited information, they must immediately cease the transmission of such information, delete the information, keep relevant
records, and report to relevant government authorities. In July 2013, the MIIT promulgated the Regulation on Protection of Personal Information of
Telecommunications and Internet Users to provide for more detailed rules in this respect.
In addition, the State Secrecy Bureau has issued provisions authorizing the blocking access to any website it deems to be leaking state
secrets or failing to comply with the relevant legislation regarding the protection of state secrets. As Nanjing Tuniu is an ICP operator, it is subject
to the laws and regulations relating to information security. To comply with these laws and regulations, it has completed the mandatory security
filing procedures with the local public security authorities, regularly update their information security and content-filtering systems with newly
issued content restrictions, and maintains records of users’ information as required by the relevant laws and regulations. Nanjing Tuniu has also
taken measures to delete or remove links to content that to its knowledge contains information violating PRC laws and regulations. Majority of the
content posted on our online platform is first screened by our filtering systems. Content containing prohibited words or images is then manually
screened by employees who are dedicated to screening and monitoring content published on our platform and removing prohibited content. We
believe that with these measures in place, no prohibited content under PRC information security laws and regulations should have been publicly
disseminated through our online platform in the past. However, there is significant amount of content posted on our online platform by our users on
a daily basis. If any prohibited content is publicly disseminated in the future and we become aware of it, we will report it to the relevant government
authority. We believe these measures taken by us are generally in compliance with the relevant laws and regulations.
If, despite the precautions, we fail to identify and prevent illegal or inappropriate content from being displayed on or through our online
platform, we may be subject to liability. In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may
not be possible for us to determine in all cases the types of content that could result in liability. To the extent that PRC regulatory authorities find
any content displayed on or through our online platform objectionable, they may require us to limit or eliminate the dissemination or availability of
such content or impose penalties, including the revocation of our operating licenses or the suspension or shutdown of our online operations. In
addition, the costs of compliance with these regulations may increase as the volume of content and the number of users on our online platform
increases.
52
Regulations on Internet Privacy
The PRC Constitution states that PRC law protects the freedom and privacy of communications of citizens and prohibits infringement of
these rights. In recent years, PRC government authorities have promulgated laws and regulations on Internet use to protect personal information
from any unauthorized disclosure. The Decision on Strengthening Network Information Protection and the Regulation on Protection of Personal
Information of Telecommunication and Internet Users provide that information that identifies a citizen, the time or location for his use of
telecommunication and Internet services, or involves privacy of any citizen such as his birth date, ID card number, and address is protected by law
and must not be unlawfully collected or provided to others. ICP operators collecting or using personal electronic information of citizens must
specify the purposes, manners and scopes of information collection and uses, obtain consent of the relevant citizens, and keep the collected personal
information confidential. ICP operators are prohibited from disclosing, tampering with, damaging, selling or illegally providing others with,
collected personal information. ICP operators are also prohibited from collection and use of personal information after a user has stopped using the
services. ICP operators are required to take technical and other measures to prevent the collected personal information from any unauthorized
disclosure, damage or loss as well as conducting a self-examination of their protection of personal information at least once a year. The
Administrative Measures on Internet Information Services prohibit an ICP operator from insulting or slandering a third party or infringing upon the
lawful rights and interests of a third party. The relevant telecommunications authorities are further authorized to order ICP operators to rectify
unauthorized disclosure. ICP operators are subject to legal liability, including warnings, fines, confiscation of illegal gains, revocation of licenses or
filings, closing of the relevant websites, administrative punishment, criminal liabilities, or civil liabilities, if they violate relevant provisions on
Internet privacy. Such requirements are reiterated by the Regulation on Protection of Personal Information of Telecommunications and Internet
Users. If an ICP operator appoints an agent to undertake any marketing and technical services that involve the collection or use of personal
information, the ICP operator is required to supervise and manage the protection of such information. Any violation may subject the ICP operators
to warnings, fines, disclosure to the public and, in the most severe cases, criminal liability. The PRC government, however, has the power and
authority to order ICP operators to turn over personal information if an Internet user posts any prohibited content or engages in illegal activities on
the Internet.
Pursuant to the Cyber Security Law, personal information refers to all kinds of information recorded by electronic or otherwise that can be
used to independently identify or be combined with other information to identify a specific natural persons. Such information includes but not
limited to a natural person’s name, date of birth, ID number, biologically identified personal information, addresse and telephone numbers, etc. The
Cyber Security Law also provides that: (i) to collect and use personal information, network operators shall follow the principles of legitimacy,
rightfulness and necessity, disclose their rules of data collection and use, clearly express the purposes, means and scope of collecting and using the
information, and obtain the consent of the persons whose data is gathered; (ii) network operators shall neither gather personal information unrelated
to the services they provide, nor gather or use personal information in violation of the provisions of laws and administrative regulations or the
scopes of consent given by the persons whose data is gathered; and shall dispose of personal information they have saved in accordance with the
provisions of laws and administrative regulations and agreements reached with the persons whose data is collected; and (iii) network operators shall
not divulge, tamper with or damage the personal information they have collected, and shall not provide the personal information to others without
the consent of the persons whose data is collected. However, exceptions may apply if the information has been processed and cannot be recovered
and thus it is impossible to match such information with any specific persons.
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 SAMR. Although we request that travel suppliers provide their licenses or permits to us before entering into agreements with
them, we cannot ensure that all of 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 travel suppliers. If there is any deterioration in the quality of their performance, our
customers may not continue using our online platform.”
Regulations on Hotel Operation
In November 1987, the Ministry of Public Security issued the Measures for the Control of Security in the Hotel Industry, which has been
amended in January 2011. 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, which has been amended in 2016. 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.
53
In April 1987, the PRC State Council promulgated the Public Area Hygiene Administration Regulation, which has been amended in
February 2016, requiring hotels to obtain a public area hygiene license before opening for business. In March 2011, the Ministry of Health
promulgated the Implementation Rules of the Public Area Hygiene Administration Regulation, which has been amended in February 2016 and
December 2017, respectively, requiring, starting from May 1, 2011, hotel operators to establish hygiene administration system and keep records of
hygiene administration. In February 2009, the Standing Committee of the National People’s Congress, or the SCNPC, enacted the PRC Law on
Food Safety, which has been amended in February 2016 and December 2018, respectively, requiring any hotel that provides food to obtain a food
service license.
The Fire Prevention Law, as amended by the SCNPC in October 2008, and the Provisions on Supervision and Inspection on Fire
Prevention and Control, as amended by the Ministry of Public Security in July 2012, require that public gathering places such as hotels submit a fire
prevention design plan in order to apply for completion acceptance of fire prevention facilities for their construction projects and to pass a fire
prevention safety inspection by the local public security fire department, which is a prerequisite for opening business.
In January 2006, the PRC State Council promulgated the Regulations for Administration of Entertainment Places which has been amended
in February 2016. In March 2006, the Ministry of Culture issued the Circular on Carrying Out the Regulations for Administration of Entertainment
Places. Under these regulations, hotels that provide entertainment facilities, such as discos or ballrooms, are required to obtain a license for
entertainment business operations.
We cannot ensure that all of the hotels that we offer to our customers have obtained, and maintained, all necessary permits and licenses.
See “Item 3. D. Key Information—Risk Factors—Risks Related to Our Business and Industry—We may not be able to adequately control and
ensure the quality of travel products and services sourced from travel suppliers. If there is any deterioration in the quality of their performance, our
customers may not continue using our online platform.”
Regulations on Travel Companies
The travel industry is subject to the supervision of the China National Tourism Administration, or CNTA, and local tourism
administrations. The principal regulations governing travel companies in China include: (i) the Regulation on Travel Companies, or the Travel
Company Regulations, issued by the PRC State Council in February 2009, and amended in February 2016, July 2016, and March 2017, which
replaced the Administration of Travel Companies Regulations (1996), (ii) the Implementation Rules for the Regulation on Travel Companies (the
“Travel Company Implementation Rules”), promulgated by the CNTA in April 2009 and amended in December 2016, (iii) the Tourism Law issued
by the Standing Committee of the National People’s Congress on April 25, 2013, and amended in November 2016 and October 2018, respectively,
and (iv) Measures for the Administration of the Overseas Tours of Chinese Citizens, issued by the PRC State Council in May 2002, became
effective as of July 2002 and was amended in March 2017. Under these regulations, a travel company must obtain a license from the CNTA to
conduct cross-border travel business and a license from the provincial-level tourism administration to conduct domestic travel company business.
The Travel Company Regulations permit foreign investors to establish wholly foreign-owned travel companies, as well as joint ventures
and cooperative travel companies. Foreign-owned travel companies are allowed to open branches nationwide, but are restricted from engaging in
overseas travel business in China, unless otherwise determined by the PRC State Council, or provided under a bilateral free trade agreement
between the country and China, or the closer economic partnership agreements between China, Hong Kong and Macau. On July 1, 2016, the State
Council issued the Decision of the State Council on Temporally Adjusting Relevant Provisions of Administrative Regulations, Documents of the
State Council and Departmental Rules approved by the State Council in the Pilot Free Trade Zones, or Decision 41, pursuant to which qualified
foreign-invested travel companies, registered in the Pilot Free Trade Zones of Shanghai, Guangdong, Tianjin and Fujian, may engage in overseas
travel business, excepted in Taiwan area. The Travel Company Implementation Rules define certain terms used in the Travel Company Regulations,
for example, the definition of “domestic tourism business,” “inbound travel business” and “overseas travel business”, and set out detailed
application requirements to establish a travel company. The Travel Company Implementation Rules also clarify certain aspects of legal liability for
travel companies as prescribed in the Travel Company Regulations. The State Council Circular 16 allows qualified foreign-invested travel
companies, including Sino-foreign joint ventures and wholly foreign owned travel companies, registered in Beijing to engage in overseas travel
business, except in Taiwan area.
54
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 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 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. Each of our relevant
consolidated affiliated entities engaged in travel agent business has procured and is covered by valid travel company liability insurance.
Regulations on Online Transaction Platform Operators
In May 2014, the SAIC issued the Guidelines for the Performance of Social Responsibilities by Online Transaction Platform Operators, or
the Online Transaction Platform Operators Guidelines. The Online Transaction Platform Operators Guidelines stipulate the qualification
requirements for operators of online transaction platform, and certain other obligations, such as examination and registration of any business
operator using online transaction platform, online transaction operator’s contracts with suppliers and customers, data protection for consumers,
among others. Pursuant to Online Transaction Platform Operators Guidelines, online transaction platform operators must (i) establish a consumer
protection and consumer dispute settlement system, and (ii) ensure that their complaint and customer support channels are smooth.
55
In addition, online transaction platform operators must also preserve all relevant online transaction data for at least two years from the date
of the transaction. Operators of online transaction platform must obey the Consumer Protection Law, the Product Quality Law, the Anti-unfair
Competition Law and other relevant laws and regulations. Furthermore, as required by Jiangsu Administration of Telecommunication, Nanjing
Tuniu, our consolidated affiliated entity, has obtained a license of online data processing and transaction which will expire in March 2019. Subject
to any clarifications or interpretations that may be issued in future as to the Online Transaction Platform Operators Guidelines, we might need to
adjust our operational or contracting practices.
In August 2018, the Standing Committee of the National People’s Congress promulgated the PRC E-commerce Law, which became
effective in January 2019. The E-commerce Law strengthens the regulation on E-commerce operators relating to consumer protection, personal data
protection and intellectual property rights protection. As an e-commerce operator, we are required under the E-commerce Law, (1) to refrain from
conducting false or misleading commercial promotion by fabricating transactions, making up user comments or otherwise, to defraud or mislead
consumers, (2) to allow consumer to opt out of search results targeting his or her personally characteristics such as hobbies and shopping patterns
and simultaneously show the consumers with options not targeting his or her personally characteristics, (3) to alert consumers of tie-in sale of
commodities or services, and shall not set the tied-in commodities or services as a default option, (4) to obtain and maintain business license and
other applicable licenses as required, and disclose information of such license at our front-page, (5) to clearly detail the refund procedure for the
deposit we received from customers, and not set any unreasonable conditions to refund, (6) to take the risks and responsibilities in the transportation
of the products, unless the consumer chooses a courier logistics service provider other than the default service provider, etc.
Regulations on Consumer Rights Protection
According to the PRC Consumer Protection Law, as amended on October 25, 2013 and became effective as of March 15, 2014, the rights
and interests of consumers that purchase or use commodities or that receive services for consumption purposes in daily life is required to be
protected, which includes the right to personal safety and the safety of property, the right to be informed about goods and services offered for sale,
the right to free choice when selecting goods or services and the right to enjoy fair dealings, respect for their personal dignity and ethnic customs,
and compensation for damages suffered.
Correspondingly, a business operator providing a commodity or service to a consumer is subject to a number of requirements, which
includes to ensure that commodities and services meet with certain safety requirements, to disclose serious defects of a commodity or a service and
to adopt preventive measures against damage occurring, to provide consumers with accurate information and to refrain from conducting false
advertising, and not to set unreasonable or unfair terms for consumers or alleviate or release itself from civil liability for harming the lawful rights
and interests of consumers by means of standard contracts, circulars, announcements, shop notices or other means. A business operator may be
subject to civil liabilities for failing to fulfill the obligations discussed above. These liabilities include restoring the consumer’s reputation,
eliminating the adverse effects suffered by the consumer, offering an apology and compensating for any losses incurred. The following penalties
may also be imposed upon business operators for any infraction: issuance of a warning, confiscation of any illegal income, imposition of a fine, an
order to cease business operation, revocation of its business license or imposition of criminal liabilities under circumstances that are specified in
laws and statutory regulations.
The amended Consumer Protection Law further strengthens the protection of consumers and imposes more stringent requirements and
obligations on business operators, especially on the business operators through the internet. The consumers whose interests are harmed due to their
purchase of goods or acceptance of services on online marketplace platforms may claim damages from sellers or service providers. As to legal
liabilities of the online marketplace platform provider, the Consumer Protection Law set forth that, where a consumer purchases products or accepts
services via an online trading platform and his or her interests are prejudiced, if the online trading platform provider fails to provide the name,
address and valid contact information of the seller, the manufacturer or the service provider, the consumer is entitled to demand compensation from
the online trading platform provider. If the online trading platform provider gives an undertaking that is more favorable to consumers, it shall
perform such undertaking. Once the online trading platform provider has paid compensation, it shall have a right of recourse against the seller, the
manufacturer or the service provider. If an online trading platform provider is aware or ought to have been aware that a seller, manufacturer or
service provider is using the online platform to infringe upon the lawful rights and interests of consumers and it fails to take necessary measures, it
shall bear joint and several liabilities with the seller, the manufacturer or service provider for such infringement. The Tort Liability Law of the PRC,
which was enacted by the Standing Committee of the National People’s Congress on December 26, 2009, also provides that if an online service
provider is aware that an online user is committing infringing activities, such as selling counterfeit products, through its internet services and fails to
take necessary measures, it shall be jointly and severally liable with the said online user for such infringement. If the online service provider
receives any notice from the infringed party on any infringing activities, the online service provider shall take necessary measures, including
deleting, blocking and unlinking the infringing content, in a timely manner. Otherwise, it will be jointly and severally liable with the relevant online
user for the extended damages.
In June, 2017, the SAIC issued the Interim Measures for No Reason Return of Online Purchased Commodities within Seven Days, which
came into effect in March 2017, which further clarifies the scope of consumers' rights to make returns without a reason, including the detailed rules
on exceptions, return procedures and online marketplace platform providers' responsibility to formulate seven-day no-reason return rules, sets up the
related consumer protection systems and supervision on merchants for compliance with the relevant rules.
In December 2003, the Supreme People’s Court in China issued 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.
56
Although we take certain measures to monitor the qualities of the travel products and services provided by 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 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 SAMR 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
most recently amended on October 26, 2018 and effective as of the same date;
(cid:120) Administrative Regulations for Advertising, promulgated by the PRC State Council on October 26, 1987 and effective since December
1, 1987.
(cid:120)
(cid:120)
Regulations on Internet Information Search Services, promulgated by the Cyberspace Administration of China on June 25, 2016 and
effective on August 1, 2016 ; and
Interim Measures for Administration of Internet Advertising, promulgated by the SAIC on July 4, 2016 and effective on September 1,
2016.
According to the above regulations, companies that engage in advertising activities must each obtain, from the SAMR or its local branches,
a business license which specifically includes operating an advertising business in its business scope. An enterprise engaging in advertising business
within the specifications in its business scope does not need to apply for the registration for advertisement publication, provided that such enterprise
is not a radio station, television station, newspaper and periodical publishers.
Under the Rules for Administration of Foreign Invested Advertising Enterprises, which were jointly promulgated by the SAIC and the
MOC on March 2, 2004 and amended on August 22, 2008, certain foreign investors are permitted to hold direct equity interests in PRC advertising
companies. A foreign investor in a Chinese advertising company is required to have prior direct advertising operations as its main business outside
China for two years if the Chinese advertising company is a joint venture, or three years if the Chinese advertising company is a wholly foreign-
owned enterprise. Since we have not been involved in the advertising industry outside of China for the required number of years, we are not
permitted to hold direct equity interests in PRC companies engaging in the advertising business. Therefore, we conduct our advertising business
through Nanjing Tuniu, which holds a business license that covers advertising in its business scope. The Rules for Administration of Foreign
Invested Advertising Enterprises has been abolished on June 29, 2015.
PRC advertising laws and regulations set certain content requirements for advertisements in China, including, among other things,
prohibitions on false or misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition,
violence, discrimination or infringement of the public interest. Advertisers, advertising agencies, and advertising distributors are required to ensure
that the content of the advertisements they prepare or distribute is true and in full compliance with applicable laws. In providing advertising
services, advertising operators and advertising distributors must review the supporting documents provided by advertisers for advertisements and
verify that the content of the advertisements complies with applicable PRC laws and regulations. Prior to distributing advertisements that are subject
to government censorship and approval, advertising distributors are obligated to verify that such censorship has been performed and approval has
been obtained. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease
dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. Where serious violations occur,
the SAMR or its local branches may revoke such offenders’ licenses or permits for their advertising business operations.
57
Regulations on Small Credit Companies
Under the Guiding Opinions on the Pilot Operation of Small Credit Companies which was promulgated by the China Banking Regulatory
Commission, or the CBRC which is now merged into the China Banking and Insurance Regulatory Commission, or CBIRC, and the People’s Bank
of China, or PBOC, on May 4, 2008, or the Guiding Opinions on Small Credit Companies, a small credit company is a company which is
specialized in operating a small credit business, established with investments from natural persons, legal-person enterprises or other social
organizations, and does not accept any public deposits. Currently there is no regulatory authority at the national level with respect to the
administration and supervision of small credit companies in the PRC. Pursuant to the Guiding Opinions on Small Credit Companies, if a provincial
government determines a competent department (office of finance or relevant organizations) to be responsible for the supervision and administration
of small credit companies and the regulation of risks associated with small credit companies, such provincial government may carry out the pilot
operation of small credit companies within such province. The applicant is required to file an application with the competent department of the
provincial government to apply for setting up a small credit company. Based on the Guiding Opinions on Small Credit Companies, many provincial
governments, including that of Guangdong Province, where our small credit company is incorporated, promulgated local implementing rules on the
administration of small credit companies. Such small credit company has obtained the approval issued by the competent authority to conduct small
credit businesses through the internet.
Regulations on Insurance Brokerage
According to the Provisions on the Supervision of Insurance Brokers, or the POSIB, promulgated by the China Insurance Regulatory
Commission, which was merged into CBIRC, on February 1, 2018 and effective on May 1, 2018, the insurance brokerage company must obtain
insurance brokerage license from CBIRC before engaging in insurance brokerage business. One of our PRC consolidated affiliated entities has
obtained the insurance brokerage license to operate the following insurance brokerage businesses: (i) draft insurance plans for insurance applicants,
select insurance companies and handle insurance application formalities nationwide; (ii) assist the insured parties or beneficiaries in making claims;
(iii) reinsurance brokerage, (iv) provide disaster prevention, loss prevention, risk evaluation or risk management advisory services to entrusting
parties; (v) other businesses approved by the CBIRC.
Regulations on Fund Distribution
According to the Administrative Measures on Securities Investment Fund Distribution, or the Fund Distribution Administrative Measures,
promulgated by CSRC, fund distribution institutions include fund managers and other institutions registered with the CSRC or its branches.
Commercial banks, securities companies, futures companies, insurance institutions, securities investment consulting institutions and independent
institutions are required to register with local CSRC branch and obtain the relevant fund distribution license before engaging in fund distribution
service. Distribution services regulated under the Fund Distribution Administrative Measures refer to marketing and promotion, sales and
distribution, and in particular, subscription and redemption services of mutual funds. With the fund distribution license, the distributor can also
distribute the asset management plans under the CSRC regime. One of our PRC consolidated affiliated entities obtained the fund distribution license
from the CSRC.
Regulations on Commercial Factoring
On June 27, 2012, the MOC promulgated the Notice on Pilot Scheme for Commercial Factoring, or Notice 419, to launch the pilot scheme
for commercial factoring in Shanghai Pudong New District and Tianjin Binhai New District. The MOC also released several other circulars to
expand the pilot areas to Guangzhou and Chongqing Liangjiang New Area, and certain other areas. According to the local implementation rules,
commercial factoring company may be established upon approval by the local branches of the MOC or other competent authorities (e.g. local
financial work offices) in the said regions. The business scope of a commercial factoring company may cover trade financing services, management
of sales ledgers, customer credit investigation and evaluation, management and collection of accounts receivable and credit risk guarantee.
Commercial factoring companies are neither allowed to engage in prohibited financial activities such as acceptance of deposits and disbursement of
loans, nor allowed to engage in debt collection business or being entrust to collect debts. On May 14, 2018, MOC announced that the regulatory
authority of commercial factoring industry has been transferred from MOC to the CBIRC since April 20, 2018.
One of our PRC subsidiaries established in Nanjing is approved by the competent authority in Jiangsu to provide commercial factoring
services.
58
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 State Intellectual Property Office, formerly 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, 2018, we had 413 registered trademarks in different
applicable trademark categories and were in the process of applying to register 47 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.
Domain Name
Domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by the MIIT in August 2017
and effective on November 2017. 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. In November 2017, MIIT promulgated the Notice of the Ministry of Industry and Information Technology on
Regulating the Use of Domain Names in Internet Information Services to further regulate the use of domain names in internet information services.
As of December 31, 2018, we had 92 registered domain names, including www.tuniu.com.
Copyright
Works are protected under the PRC Copyright Law adopted by the National People’s Congress in 1990, as amended in 2001 and 2010, as
well as its implementation rules adopted by the State Council in 1991, as amended in 2002, 2011 and 2013. Whether such protected works are
published or not, copyrights duly obtained and enjoyed by the author or other copyright owner remain unaffected. Copyright owners, however,
could register such protected works on a voluntary basis with National Copyright Administration or its local counterparts. We have registered 24
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.
59
Software Copyrights
Computer Software Protection Regulations promulgated by the PRC State Council in December 2001, amended in 2011 and 2013, provide
that the rights and interests of computer software copyright owners are protected. A Chinese citizen, legal person, or other organization shall be
entitled to the copyright in software developed thereby regardless of whether the software has been published or not. A foreigner’s or stateless
person’s software shall enjoy copyright if it is first distributed in China.
In order to further implement the Computer Software Protection Regulations, the State Copyright Bureau issued the Computer Software
Copyright Registration Procedures in February 2002, amended in 2004, which apply to software copyright registration, license contract registration
and transfer contract registration. As of December 31, 2018, we had 61 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, 2018, we had 13
registered patent, and were in the process of applying to register 28 patents in China.
Tort Liability Law
In accordance with the Tort Liability Law promulgated by the Standing Committee of the National People’s Congress in December 2009,
which became effective as of July 1, 2010, Internet users and Internet service providers bear tortious liabilities in the event they infringe other
persons’ rights and interests through the Internet. Where an Internet user conducts tortious acts through Internet services, the infringed person has
the right to request the Internet service provider to take necessary actions such as deleting contents, screening and delinking. The Internet service
provider, failing to take necessary actions after being informed, will be subject to joint and several liabilities with the Internet user with regard to the
additional damages incurred. If an Internet service provider knows an Internet user is infringing other persons’ rights and interests through its
Internet service but fails to take necessary action, it shall be jointly and severally liable with the Internet user. We have internal policies designed to
reduce the likelihood that user content may be used without proper licenses or third-party consents. When we are approached and requested to
remove content uploaded by users on the grounds of infringement, we investigate the claims and remove any uploads that appear to infringe the
rights of a third party after our reasonable investigation and determination. However, such policy may not be effective in preventing the
unauthorized listing of copyrighted materials or materials infringing other rights of third parties. See “Item 3.D. Key Information—Risk
Factors—Risks Related to Our Business and Industry—Claims by third parties that we infringe on their intellectual property rights could lead to
government administrative actions and result in significant costs and have a material adverse effect on our business, financial condition and results
of operations.”
Regulations on Foreign Currency Exchange
Pursuant to the Foreign Exchange Administration Regulations, as amended in August 2008, if documents certifying the purpose of the
conversion of Renminbi into foreign currency are submitted to the relevant foreign exchange conversion bank, the Renminbi is convertible for
current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for
capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless SAFE’ s
prior approval is obtained or prior registration with appropriate government authorities or designated banks 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. In February 2015, SAFE promulgated the Circular of Further Simplifying and Improving the Policies of Foreign
Exchange Administration Applicable to Direct Investment, or SAFE Circular 13, which became effective on June 1, 2015. Under SAFE Circular 13,
the foreign exchange procedures are further simplified, and foreign exchange registrations of direct investment will be handled by the banks
designated by the foreign exchange authority instead of SAFE and its branches. We generally follow the regulations and apply to obtain the
approval of or registration with SAFE and other relevant PRC government authorities or designated banks. However, we may not be able to obtain
these 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.
60
In August 2008, SAFE promulgated a SAFE Circular 142 regulating the conversion, by a foreign-invested enterprise, of foreign currency
into Renminbi by restricting how the converted Renminbi may be used. The SAFE Circular 142 requires that the registered capital of a foreign-
invested enterprise settled in Renminbi converted from foreign currencies may only be used for purposes within the business scope approved by the
applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the
flow and use of the registered capital of a foreign-invested enterprise settled in Renminbi converted from foreign currencies. The use of such
Renminbi capital may not be changed without SAFE’ s approval, and may not in any case be used to repay Renminbi loans if the proceeds of such
loans have not been used. Violations of the SAFE Circular 142 will result in penalties, such as fines. SAFE decided to further reform the foreign
exchange administration system in order to satisfy and facilitate the business and capital operations of foreign invested enterprises, and issued the
Circular on the Relevant Issues Concerning the Launch of Reforming Trial of the Administration Model of the Settlement of Foreign Currency
Capital of Foreign-Invested Enterprises in Certain Areas on August 4, 2014, or Circular 36. This circular suspends the application of SAFE Circular
142 in certain areas and allows a foreign-invested enterprise registered in such areas with a business scope including “investment” to use the
Renminbi capital converted from foreign currency registered capital for equity investments within the PRC. On March 30, 2015, SAFE promulgated
Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. Circular
19 allows foreign-invested enterprises to make equity investments by using Renminbi fund converted from foreign exchange capital. However,
Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted from its foreign exchange
capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. In June 2016,
SAFE promulgated Notice on Reforming and Standardizing the Administrative Provisions on Capital Account Foreign Exchange Settlement which
further stipulates that foreign-invested enterprises shall not use Renminbi fund converted from foreign exchange capital for disbursing loans to non-
affiliated enterprises, except for expressly permitted by its business scope. In addition, SAFE strengthened its oversight of the flow and use of the
Renminbi capital converted from foreign currency registered capital of a foreign-invested company. SAFE also promulgated a SAFE Circular 45 in
November 2011, which, among other things, restricts a foreign-invested enterprise from using Renminbi converted from its registered capital to
provide entrusted loans or repay loans between non-financial enterprises. Circular 45 was abolished on March 19, 2015. These circulars may
significantly limit our ability to use Renminbi converted from net proceeds of our initial public offering and the concurrent private placement and
our subsequent private placement in December 2014, May 2015 and November 2015 to fund establishment of new PRC subsidiaries, to invest in or
acquire any other PRC companies, or establish new consolidated affiliated entities in the PRC.
Regulations on Dividend Distribution
The principal regulations governing distribution of dividends of wholly foreign-owned enterprises include the PRC Company Law, as
amended in December 2013 and in October 2018, respectively, the Wholly Foreign-Owned Enterprise Law, as amended in October 2000 and 2016,
and the Implementation Rules of the Wholly Foreign-Owned Enterprise Law, as amended in February 2014. Pursuant to these laws and regulations,
foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to allocate at least 10% of their respective
accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the
enterprises. In addition, these companies may allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare
and bonus funds at their discretion. These reserves are not distributable as cash dividends.
Regulations on Offshore Financing
Pursuant to a SAFE Circular 37 issued by SAFE on July 4, 2014, which replaced the former circular commonly known as “Safe Circular
75” issued by SAFE in October 2005, prior registration with the local SAFE branch is required for PRC residents in connection with their direct
establish or indirect control of an offshore entity, for the purposes of overseas investment and financing, with assets or equity interests of onshore
companies or offshore assets or interests held by such PRC residents, referred to in SAFE Circular 37 as a “special purpose vehicle.” The PRC
residents are also required to amend the registration or filing with the local SAFE branch in the event of any significant changes with respect to the
special purpose vehicle, such as increase or decrease of capital contributed by PRC residents, share transfer or exchange, merger, division or other
material event.
61
Failure to comply with the registration procedures set forth in the SAFE Circular 37 may result in restrictions being imposed on the foreign
exchange activities of the relevant onshore company, including the increase of its registered capital, the payment of dividends and other distributions
to its offshore parent or affiliate and the capital inflow from the offshore entities, and may also subject relevant PRC residents to penalties under
PRC foreign exchange administration regulations. PRC residents who control our company from time to time are required to register with SAFE in
connection with their investments in us. We requested PRC residents holding direct or indirect interests in our company to our knowledge to make
the necessary applications, filings and amendments as required under SAFE Circular 75 and other related rules prior to our initial public offering.
However, we might not be fully informed of the identities of all of our beneficial owners who are PRC citizens or residents, and we cannot compel
our beneficial owners to comply with the requirements of SAFE Circular 37. As a result, we cannot assure you that all of our shareholders or
beneficial owners who are PRC citizens or residents have complied with and will in the future make or obtain any applicable registrations or
approvals required by SAFE Circular 37 or other related regulations. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing
Business in China—PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase
their registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiaries, or otherwise expose us to liability and
penalties under PRC laws.”
Regulations on Employee Stock Option Plans
In February 2012, SAFE promulgated the Stock Option Rules, replacing the previous rules issued by SAFE in March 2007. Under the
Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed
company, which includes employee stock ownership plans, stock option plans and other incentive plans permitted by relevant laws and regulations,
are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan in an overseas
publicly listed company who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed
company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the
stock incentive plan on behalf of its participants. The participants must also retain an overseas entrusted institution to handle matters in connection
with their exercise of stock options, the purchase and sale of corresponding stocks or interests and fund transfers. In addition, the PRC agent is
required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC
agent or the overseas entrusted institution or other material changes. The PRC agents must, on behalf of the PRC residents who have the right to
exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection
with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of
shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in
the PRC opened by the PRC agents before distribution to such PRC residents.
We adopted the 2008 Plan, pursuant to which we may issue options or restricted shares to our qualified employees and consultants on a
regular basis. We also adopted the 2014 Plan, which permits the granting of options to purchase our ordinary shares, restricted shares and restricted
share units. The failure of the share options holders to complete their registration pursuant to the Stock Option Rules and other foreign exchange
requirements may subject these PRC individuals to fines and legal sanctions, and may also limit our ability to contribute additional capital to our
PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to us or otherwise materially adversely affect our business. See “Item
3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—Failure to comply with PRC regulations regarding the
registration requirements for share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.”
In addition, the State Administration for Taxation has issued circulars concerning employee share options, under which our employees
working in the PRC who exercise share options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file
documents related to employee share options with relevant tax authorities and to withhold individual income taxes of those employees who exercise
their share options. If our employees fail to pay or if we fail to withhold their income taxes as required by relevant laws and regulations, we may
face sanctions imposed by the PRC tax authorities or other PRC government authorities.
62
Regulations on Overseas Listing
Six PRC regulatory agencies, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises
by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and which were amended on June 22, 2009, with such
amendments becoming effective as of the same date. The M&A Rules, among other things, require offshore SPVs formed for overseas listing
purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC
prior to publicly listing their securities on an overseas stock exchange.
While the application of this new regulation remains unclear, we believe, based on the advice of our PRC counsel, Fangda Partners, that
CSRC approval was not required in the context of our initial public offering because (1) CSRC currently has not issued any definitive rule or
interpretation concerning whether offerings like initial public offerings are subject to this regulation and (2) we established our PRC subsidiaries by
means of direct investment other than by merger or acquisition of PRC domestic companies and no explicit provision in the M&A Rules classifies
the contractual arrangements between Beijing Tuniu, our PRC subsidiary, Nanjing Tuniu, our consolidated affiliated entity, and its shareholders as a
type of acquisition transaction falling under the M&A Rules. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in
China—The approval of the China Securities Regulatory Commission may have been required in connection with our earlier initial public offering
under a regulation adopted in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval.”
Regulations on Employment
The PRC Labor Law, the PRC Labor Contract Law and its implementation rules provide requirements concerning employment contracts
between an employer and its employees. If an employer fails to enter into a written employment contract with an employee within one year from the
date on which the employment relationship is established, the employer would be deemed to have entered into a labor contract without a fixed term
with such employee. In addition, the employer must rectify the situation by entering into a written employment contract with the employee and pay
the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the
employment relationship to the day prior to the execution of the written employment contract. The Labor Contract Law and its implementation rules
also require compensation to be paid upon certain terminations. In addition, if an employer intends to enforce a non-compete provision with an
employee in an employment contract or non-competition agreement, it has to compensate the employee on a monthly basis during the term of the
restriction period after the termination or ending of the labor contract. Employers in most cases are also required to provide a severance payment to
their employees after their employment relationships are terminated.
Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance
funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity
insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including
bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or
where they are located.
Regulations on Taxation
For a discussion of applicable PRC tax regulations, see “Item 5.A. Operating and Financial Review and Prospects—Operating
Results—Taxation.”
63
C.
Organizational Structure
The following diagram illustrates our corporate structure, including our principal subsidiaries, consolidated affiliated entity and its
principal subsidiaries, as of the date of this annual report on Form 20-F:
(1) Messrs. Dunde Yu, Haifeng Yan, Tong Wang, Jiping Wang, Xin Wen, Yongquan Tan and Haifeng Wang hold 28.66%, 19.11%, 7.71%, 4.82%,
0.96%, 0.96% and 37.78% equity interests in Nanjing Tuniu, respectively. Among the shareholders of Nanjing Tuniu, Messrs. Dunde Yu is our
founder, director and an ultimate shareholder of Tuniu Corporation. Messrs. Haifeng Yan was our co-founder and is our director. 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. 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.
64
Equity Interest Pledge Agreement. Pursuant to the equity interest pledge agreement entered into on September 17, 2008 and supplemented
on March 19, 2014, each of the shareholders of Nanjing Tuniu pledges all of such shareholder’s equity interests in Nanjing Tuniu to guarantee the
performance of the obligations under the purchase option agreement. If the shareholders of Nanjing Tuniu breach their contractual obligations under
the purchase option agreement, Beijing Tuniu, as the pledgee, will have the right to either conclude an agreement with the pledgor to obtain the
pledged equity or seek payments from the proceeds of the auction or sell-off of the pledged equity to any person pursuant to the PRC law. The
shareholders of Nanjing Tuniu agree that, during the term of the equity interest pledge agreement, they will not dispose of the pledged equity
interests or create or allow any encumbrance on the pledged equity interests. During the equity pledge period, Beijing Tuniu is entitled to all
dividends and other distributions made by Nanjing Tuniu. The equity interest pledge became effective on the date when the equity interest pledge
was registered with the relevant local administration for industry and commerce, and remains effective until the shareholders of Nanjing Tuniu
discharge all their obligations under the purchase option agreement, or Beijing Tuniu enforces the equity interest pledge, whichever is earlier. We
have completed the registration of the equity interest pledge with Xuanwu Branch of Nanjing Administration for Industry and Commerce.
Shareholders’ Voting Rights Agreement. Pursuant to the shareholders’ voting rights agreement entered into on September 17, 2008, the
shareholders of Nanjing Tuniu appointed Beijing Tuniu or its designated person as their attorney-in-fact to exercise all of their voting and related
rights with respect to their equity interests in Nanjing Tuniu, including attending shareholders’ meetings, voting on all matters of Nanjing Tuniu
requiring shareholder approval, nominating and appointing directors, convening extraordinary shareholders’ meetings, and other voting rights
pursuant to the then-effective articles of association of Nanjing Tuniu. The shareholders’ voting rights agreement will remain in force until all the
parties to the agreement mutually agree to terminate the agreement in writing or cease to be shareholders of Nanjing Tuniu.
Irrevocable Powers of Attorney. Pursuant to the powers of attorney dated January 24, 2014, the shareholders of Nanjing Tuniu each
irrevocably appointed Beijing Tuniu as the attorney-in-fact to exercise all of such shareholder’s voting and related rights with respect to such
shareholder’s equity interests in Nanjing Tuniu, including but not limited to attending shareholders’ meetings, voting on all matters of Nanjing
Tuniu requiring shareholder approval, nominating and appointing directors, convening extraordinary shareholders’ meetings, and other voting rights
pursuant to the then-effective articles of association of Nanjing Tuniu. Each power of attorney will remain in force until the shareholders’ voting
rights agreement expires or is terminated. These powers of attorney replaced the powers of attorney previously granted to a person designated by
Beijing Tuniu on September 17, 2008.
Agreement that Allows us to Receive Economic Benefits from Nanjing Tuniu
Cooperation Agreement. Under the cooperation agreement entered into on September 17, 2008 and restated and amended on January 24,
2014, Beijing Tuniu has the exclusive and irrevocable right to provide to Nanjing Tuniu business consulting, technical consulting and technical
services related to the businesses of Nanjing Tuniu and its subsidiaries. Beijing Tuniu owns the exclusive intellectual property rights created by
Nanjing Tuniu or its employees as a result of the performance of this agreement. Beijing Tuniu has the right to receive, or designate a person or
persons to receive, a quarterly service fee, which equals the profits of each of Nanjing Tuniu and its subsidiaries, to which it provides such business
consulting, technical consulting and technical services, provided that such amount of service fees can be adjusted by Beijing Tuniu at its sole
discretion. This agreement will remain effective until expiration of Beijing Tuniu’s business term, unless Beijing Tuniu exercises its unilateral right
to terminate the agreement, one of the parties is declared bankrupt or Beijing Tuniu is not able to provide consulting and services as agreed for more
than three consecutive years because of force majeure. Nanjing Tuniu is not permitted to terminate the agreement in any other event.
In 2016, 2017 and 2018, we received service fees of RMB109.6 million, RMB138.1 million and RMB197.9 million (US$28.8 million),
respectively, from our consolidated affiliated entities, which were eliminated on consolidated financial statements.
D.
Property, Plant and Equipment
Our principal executive offices, consisting of our administrative center, sales and marketing division, technical services department, and
call center, are located on leased premises in Jiangsu, Shanghai and Beijing comprising approximately 57,139 square meters. We lease these
premises under lease agreements from unrelated third parties, and we plan to renew these leases from time to time as needed. We believe that the
facilities we currently lease for our executive offices are adequate to meet our administrative needs for the foreseeable future, and we believe that
we will be able to obtain adequate facilities, principally through the leasing of additional properties, to accommodate our strategic regional
expansion plans of adding more offline retail stores in different parts of China.
65
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.
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 travellers on our platform. Our platform offers product portfolio consists of over 1 million
stock keeping units, or SKUs, of organized tours, over 1.2 million SKUs of self-guided tours, and tickets for all popular domestic and overseas
tourist attractions. Our core strength is in overseas leisure travel products and services, which contributed approximately 67% of packaged tour
gross bookings on our platform in 2018. In 2018, the number of orders placed through our mobile platform accounted for over 90% of total orders
placed through our online platform and average daily unique visitors to our mobile platform accounted for over 75% of the average daily unique
visitors to our online platform.
We generated net revenues of RMB10,530.9 million, RMB2,192.1 million, RMB2,240.1 million (US$325.8 million) in 2016, 2017 and
2018, respectively. We recognized substantially all revenues from organized tours for 2016 on a gross basis and revenues from most of the
organized tours for 2017 and 2018 on a net basis as a result of changes in our role in the organized tour arrangements since the beginning of 2017
(except for certain business arrangements that we takes substantive inventory risks and the self-operated local tour operators in which we act as a
principal, for which revenue are recognized on gross basis for 2017 and 2018), which caused the decrease in the revenue amount for 2017 and 2018.
On a comparable net basis whereby revenues for 2016 are adjusted by deducting the amount we paid to travel suppliers to reflect revenues from
organized tours on a net basis and applying the timing of revenue recognition as in 2017 and 2018, we generated comparable amount of net
revenues of RMB1,430.3 million, RMB2,192.1 million, RMB2,240.1 million (US$325.8 million) in 2016, 2017 and 2018, respectively. We had a
net loss of RMB2,422.3 million, RMB771.3 million, and RMB199.4 million (US$29.0 million) in 2016, 2017 and 2018, respectively. We generally
collect payments from our customers upon contract confirmation before we pay travel suppliers. Our net cash provided by operating activities was
RMB268.1 million (US$39.0 million) in 2018, and net cash used in operating activities was RMB2,239.4 million and RMB418.6 million in 2016
and 2017.
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 was RMB9,891.7 million, RMB1,024.2 million, and RMB1,065.0 million (US$154.9 million) in 2016, 2017 and
2018 respectively. Our operating expenses were RMB3,138.3 million, RMB2,051.3 million and RMB1,524.1 million (US$221.7 million) in 2016,
2017 and 2018 respectively. The costs and expenses were affected by the level of spending associated with our 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. Our sales and marketing expenses were RMB1,900.4 million, RMB894.1 million, and RMB778.1 million (US$113.2 million)
in 2016, 2017 and 2018, respectively. We aim to maintain these expenses as a percentage of net revenues at a stable or lower level over time by
focusing on operational scalability and efficiency improvements. If we fail to effectively reduce our costs and expenses as a percentage of our net
revenues, we may not be able to achieve and maintain profitability.
66
Selected Income Statement Items
Revenues
We generate revenues primarily from sales of packaged tours, which consist of organized tours and self-guided tours. The following table
sets forth the components of our revenues in absolute amounts and as percentages of our net revenues for the periods presented. We adopted ASC
606, “Revenue from Contracts with Customers”, effective on January 1, 2017 by applying the full retrospective method. For the years ended
December 31, 2016, we have recast certain of the following financial data as a result of the adoption of ASC 606. See Note 2(af). “Recently Issued
Accounting Pronouncements” to our consolidated financial statements included in this Annual Report on Form 20-F for further information
regarding these changes.
2016
RMB
%
For the Years Ended December 31,
2017
RMB
RMB
%
(in thousands, except percentages)
2018
US$
%
Revenues:
Packaged tours
Others
10,147,148
401,100
96.4
3.8
1,589,353
602,747
Total revenues
Less: Business and related taxes
10,548,248
(17,307)
100.2
(0.2)
2,192,100
—
72.5
27.5
100.0
—
1,830,630
409,519
2,240,149
—
266,254
59,562
325,816
—
Net revenues
10,530,941
100.0
2,192,100
100.0
2,240,149
325,816
81.7
18.3
100.0
—
100.0
Packaged tours. Packaged tours, which consist of organized tours and self-guided tours, have grown rapidly in the past three years. In
2016, 2017 and 2018, revenues from sales of packaged-tours accounted for RMB10,147.1 million, RMB1,589.4 million and RMB1,830.6 million
(US$266.3 million), respectively. Since the beginning of 2017, we have implemented certain changes in our arrangements with the tour operators.
Our role in the organized tour arrangements has changed from being a principal into an agent that provides tour booking services to the tour
operators and travellers. As a result of the change in business arrangements, revenue from the organized tours for 2017 and 2018 was generally
recognized on a net basis except for those that we take substantive inventory risk and our self-operated local tour operators in which we act as a
principal (see Note 2(s) “Revenue Recognition” to our consolidated financial statements included in this Annual Report on Form 20-F for further
information). Under ASC 606, “Revenue from Contracts with Customers”, substantially all revenues from our organized tours for the years ended
December 31, 2016 continued to be recognized on a gross basis because of our principal role for these organized tours up to the end of 2016. In
addition, under ASC 606, “Revenue from Contracts with Customers”, revenues from organized tours for the years 2016 were recognized over the
period of the tours, and revenues from organized tours for 2017 and 2018 were recognized when the tours depart. From 2017 to 2018, our revenues
from packaged tours increased by 15.2% from RMB1,589.4 million in 2017 to RMB1,830.6 million(US$266.3 million) in 2018. The increase was
primarily due to the growth of organized tours. To increase comparability of operating results and aid investors to better understand our business
performance and operating trends from 2016 to 2018, we adjusted the revenues in 2016 to a comparable net basis by deducting the amount we paid
to travel suppliers and applying the timing of revenue recognition as in 2017 and 2018. The comparable amount for revenues from package tours of
RMB10,147.1 million in 2016 was RMB1,061.3 million. On the comparable basis, our packaged tour revenues increased by 49.8% from
RMB1,061.3 million in 2016 to RMB1,589.4 million in 2017. The increase was primarily due to the growth of organized tours and self-guided
tours.
Others. Other revenues were RMB401.1 million, RMB602.7 million and RMB409.5 million (US$59.6 million) in 2016, 2017 and 2018,
respectively. Our other revenues primarily comprise revenues generated from (i) service fees received from insurance companies, (ii) commission
fees from other travel-related products and services, such as tourist attraction tickets, visa application services, accommodation reservation and
transportation ticketing, (iii) fees for advertising services that we provide primarily to domestic and foreign tourism boards and bureaus, (iv) service
fees for financial services, and (v) interest income for yield enhancement products, the offering of which has been terminated in 2018. The decrease
was primarily due to the decline in revenues generated from financial services and service fees received from insurance companies.
67
Cost of Revenues
Our cost of revenues accounted for 93.9%, 46.7% and 47.5% as percentages of our net revenues in 2016, 2017 and 2018, respectively. As
revenues from packaged tours are mainly recognized on net basis in 2017 and 2018 (except for certain business arrangements that we takes
substantive inventory risks and the self-operated local tour operators in which we act as a principal, for which revenue are recognized on gross
basis), the amounts we pay to travel suppliers for packaged tours are mainly recorded as a reduction to revenues, rather than cost of revenues, and
hence have impact on our cost of revenues. Prior to January 2017, a substantial majority of our cost of revenues is amounts paid to travel suppliers
for the sale of the relevant organized tour products to customers.
Our cost of revenues mainly consists of salaries and other compensation-related expenses related to our tour advisors, customer services
representatives, and other personnel related to tour transactions, and other expenses directly attributable to our principal operations, primarily
including payment processing fees, telecommunication expenses, rental expenses, depreciation expenses, interest expenses for yield enhancement
products, and other service fee for financial service. For the arrangements where we secure availabilities of tours and bear substantive inventory
risks, and for the self-operated local tour operators since 2018 and the organized tours prior to the beginning of 2017 in which we act as a principal,
from which revenues are recognized on a gross basis, cost of revenues also includes the amount paid to tour operators or suppliers.
Losses arising from the committed tour reservations in abovementioned arrangements where we secure availabilities of tours were recorded
in “cost of revenues” in the consolidated statements of comprehensive loss, which were RMB45,494 for the year ended December 31, 2016 .
Commencing in 2017, since we changed our role from principal to agent in the organized tour arrangements and revenue were recognized on a net
basis, losses arising from the committed tour reservations were recorded as deductions to revenues, which were RMB11,009 for the years ended
December 31, 2017 and were insignificant for the year ended December 31, 2018.
Operating Expenses
Our operating expenses were RMB3,138.3 million, RMB2,051.3 million and RMB1,524.1 million(US$221.7 million) in 2016, 2017 and
2018, respectively. The following table sets forth the components of our operating expenses in absolute amounts and as percentages of our net
revenues for the periods presented:
2016
RMB
%
For the Year Ended December 31,
2017
RMB
%
RMB
(in thousands, except percentages)
2018
US$
%
Operating expenses:
Research and product
development
Sales and marketing
General and administrative
Other operating income
(601,402)
(1,900,397)
(658,790)
22,323
(5.7)
(18.0)
(6.3)
0.2
(541,126)
(894,148)
(637,795)
21,749
(24.7)
(40.8)
(29.1)
1.0
(315,222)
(778,126)
(487,372)
56,599
(45,847)
(113,174)
(70,885)
8,232
Total operating expenses
(3,138,266)
(29.8)
(2,051,320)
(93.6)
(1,524,121)
(221,674)
(14.1)
(34.7)
(21.8)
2.5
(68.1)
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 were RMB601.4 million, RMB541.1 million and RMB315.2 million (US$45.8 million) in
2016, 2017 and 2018, respectively. Our research and product development expenses decreased in 2018 compared to 2017 primarily due to the
increase in efficiency resulting from economies of scale and refined management, and optimization of research and product development personnel.
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 were RMB1,900.4 million, RMB894.1 million and RMB778.1 million (US$113.2 million) in 2016,
2017 and 2018, respectively. Our sales and marketing expenses decreased in 2018 compared to 2017 primarily due to the optimization of
promotional expense structure and preference for marketing channels with higher ROI.
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 were RMB658.8 million, RMB637.8 million and RMB487.4 million (US$70.9 million) in 2016, 2017 and
2018, respectively. Our general and administrative expenses in 2018 decreased as we increased our operating efficiency resulting from economies of
scale and refined management.
Other operating income. Other operating income relates primarily to government subsidies that we receive from provincial and local
governments. Government subsidies are granted from time to time at the discretion of the relevant government authorities. These subsidies are
granted for general corporate purposes and to support our ongoing operations in the region. Other operating income accounted for 0.2%, 1.0% and
2.5% of our net revenues in 2016, 2017 and 2018, respectively.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to income or capital gains
tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.
Hong Kong
Companies registered in Hong Kong are subject to Hong Kong Profits Tax on the taxable income as reported in their respective statutory
financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. Under the Hong
Kong tax law, Our Hong Kong subsidiaries are exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong
Kong on remittance of dividends.
PRC
Our PRC subsidiaries and consolidated affiliated entities are subject to PRC enterprise income tax, or EIT, on the taxable income in
accordance with the relevant PRC income tax laws.
Under the EIT Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC
resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide
income. Under the Implementation Rules, a “de facto management body” is defined as a body that has material and overall management and control
over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, SAT Circular
82, which was issued in April 2009 by the SAT and amended in 2013 and in December 2017, specifies that certain offshore incorporated enterprises
controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions are met: (a)
senior management personnel and core management departments in charge of the daily operations of the enterprises have their presence mainly in
the PRC; (b) their financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) major
assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and shareholders’ meetings are located or kept
in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC.
Further to SAT Circular 82, the SAT issued SAT Bulletin 45, which took effect on September 1, 2011 and was amended in 2015 and 2016, to
provide more guidance on the implementation of SAT Circular 82 and clarify the reporting and filing obligations of such “Chinese-controlled
offshore-incorporated resident enterprises.” SAT Bulletin 45 provides procedures and administrative details for the determination of PRC resident
enterprise status and administration on post-determination matters. Although both SAT Circular 82 and SAT Bulletin 45 only apply to offshore
enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals like us, the
determining criteria set forth in SAT Circular 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management
body” test should be applied in determining the PRC resident enterprise status of offshore enterprises, regardless of whether they are controlled by
PRC enterprises, PRC enterprise groups or by PRC or foreign individuals.
69
Nanjing Tuniu was qualified for an HNTE since 2010 and was able to renew its HNTE certificate upon expiration of the 3-year period. In
2016, Nanjing Tuniu obtained a new HNTE certificate, which expired in 2018. Therefore, Nanjing Tuniu was eligible to enjoy a preferential tax rate
of 15% from 2016 to 2018 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly conducts
relevant EIT filing procedures with the relevant tax authority. Nanjing Tuniu expects to obtain an updated HNTE in December 2019 certificate
under which it is eligible to enjoy a preferential tax rate of 15% from 2019 to 2021 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. Tuniu (Nanjing) Information
Technology Co., Ltd also obtained HNTE certificate in 2017 and is eligible to enjoy a preferential tax rate of 15% from 2017 to 2019 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. Besides, Beijing Tuniu expects to obtain the HNTE certificate in 2019 under which it is eligible to enjoy a preferential tax
rate of 15% from 2019 to 2021 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.
Under the EIT Law and its Implementation Rules, subject to any applicable tax treaty or similar arrangement between the PRC and our
investors’ jurisdiction of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10% is normally
applicable to dividends from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place
of business in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the
establishment or place of business. Any gain realized on the transfer of American depositary shares or shares by such non-PRC resident enterprise
investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC unless a tax treaty or
similar arrangement provides otherwise. Under the PRC Individual Income Tax Law and its implementation rules, dividends from sources within
the PRC paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains
from PRC sources realized by such investors on the transfer of American depositary shares or shares are generally subject to 20% PRC income tax,
in each case, subject to any reduction or exemption set forth in applicable tax treaties and PRC laws. Although substantially all of our business
operations are based in China, it is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain realized from the
transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and as a result be subject to PRC income
tax if we were considered a PRC resident enterprise, as described above. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing
Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax
purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and would have a material
adverse effect on our results of operations and the value of your investment.”
Pursuant to the applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to
pay business taxes at the rate of 5% on the revenues generated from providing such services. Entities engaging in the travel business can deduct
certain approved costs from their revenues in calculating business taxes. However, if the services provided are related to technology development
and transfer, such entities may be exempted from business and related taxes arising from such services subject to approval by the relevant tax
authorities. We are subject to business and related taxes on services provided in the PRC, and the applicable business tax rate is 5%. In our
consolidated financial statements included elsewhere in this annual report, business and related taxes are deducted from gross revenues to arrive at
net revenues.
In November 2011, the PRC Ministry of Finance released Circular Caishui 2011 No. 111 which has been repealed currently, mandating
Shanghai to be the first city to carry out a pilot program of tax reform. Effective January 1, 2012, any entity that carries out selected modern services
in Shanghai is required to pay value-added tax, or VAT instead of business tax. These entities are permitted to offset input VAT incurred with the
output VAT. The pilot program has been expanded to other regions, including Beijing from September 1, 2012 and Nanjing from October 1, 2012.
Beijing Tuniu, Nanjing Tuniu and Tuniu NJ Information Technology have been subject to VAT at a rate of 6% and have since stopped paying the
5% business tax from the respective effective dates of the tax reform. This change did not have a significant financial statement impact on our
consolidated results of operations, and we do not expect it to have any significant impact in the future.
70
On March 23, 2016, the PRC Ministry of Finance and the SAT jointly issued the Circular on the Nationwide Implementation of Pilot
Program for the Collection of Value Added-Tax Instead of Business Tax, or Circular 36, pursuant to which the VAT reforms will be implemented
comprehensively across the country and extended to the construction, real estate, financial and consumer services industries. Circular 36 became
effective on May 1, 2016 and was amended as of January 1, 2018. 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 output 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.
On May 6, 2016, the SAT issued the Administrative Measures for Value Adde-Tax Exemption on Cross-border Taxable Activities under
the Program for the Collection of Value Added-Tax Instead of Business Tax, which was most recently amended on June 15, 2018, or Circular 29,
pursuant to which the tourism services provided overseas are exempted from VAT.
On April 4, 2018, the PRC Ministry of Finance and the SAT jointly issued the Notice on Adjustment of VAT Rates, which came into effect
on May 1, 2018. According to the abovementioned notice, starting from May 1, 2018, the taxable goods previously subject to VAT rates of 17% and
11% respectively now become subject to lower VAT rates of 16% and 10% respectively. No change of VAT rate is applicable to our services due to
the promulgation of the abovementioned notice.
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. Certain financial data of 2016 have been recast as a result of the adoption of ASC 606, “Revenue from Contracts
with Customers”. The period-to-period comparisons of results of operations should not be relied upon as indicative of future performance.
2016
RMB
%
For the Years Ended December 31,
2017
RMB
RMB
%
(in thousands, except percentages)
2018
US$
%
Revenues:
Packaged tours
Others
10,147,148
401,100
Total revenues
Less: Business and related taxes
10,548,248
(17,307)
Net revenues
Cost of revenues
10,530,941
(9,891,736)
96.4
3.8
100.2
(0.2)
100.0
(93.9)
1,589,353
602,747
2,192,100
—
72.5
27.5
100.0
—
1,830,630
409,519
2,240,149
—
266,254
59,562
325,816
—
2,192,100
(1,024,206)
100.0
(46.7)
2,240,149
(1,065,022)
325,816
(154,901)
Gross profit
Operating expenses:
Research and product
development
Sales and marketing
General and administrative
Other operating income
Loss from operations
Other income/(expenses):
Interest and investment income
Foreign exchange losses, net
Other (loss)/income, net
Loss before income tax
expense
Income tax benefit/(expense)
639,205
6.1
1,167,894
53.3
1,175,127
170,915
(601,402)
(1,900,397)
(658,790)
22,323
(5.7)
(18.0)
(6.3)
0.2
(541,126)
(894,148)
(637,795)
21,749
(24.7)
(40.8)
(29.1)
1.0
(315,222)
(778,126)
(487,372)
56,599
(45,847)
(113,174)
(70,885)
8,232
(2,499,061)
(23.8)
(883,426)
(40.3)
(348,994)
(50,759)
87,305
(9,734)
(2,553)
0.8
(0.1)
(0.0)
130,250
(2,394)
(121)
5.9
(0.1)
0.0
152,929
(11,729)
8,576
22,243
(1,706)
1,247
(2,424,043)
1,711
(23.0)
0.0
(755,691)
(15,625)
(34.5)
(0.7)
(199,218)
(153)
(28,975)
(22)
Net loss
(2,422,332)
(23.0)
(771,316)
(35.2)
(199,371)
(28,997)
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Net Revenues. Net revenues were RMB2,192.1 million and RMB2,240.1 million in 2017 and 2018, respectively.
81.7
18.3
100.0
—
100.0
(47.5)
52.5
(14.1)
(34.7)
(21.8)
2.5
(15.6)
6.8
(0.5)
0.4
(8.9)
0.0
(8.9)
71
(cid:120)
Revenues from packaged tours. Revenues from packaged tours increased by 15.2% from RMB1,589.4 million in 2017 to RMB1,830.6
million (US$266.3 million) in 2018 primarily due to the growth of organized tours.
(cid:120) Other revenues. Other revenues decreased by 32.1% from RMB602.7 million in 2017 to RMB409.5 million (US$59.6 million) in
2018, primarily due to the decline in revenues generated from financial services and service fees received from insurance companies.
Cost of Revenues. Our cost of revenues increased by 4.0% from RMB1,024.2 million in 2017 to RMB1,065.0 million (US$154.9 million)
in 2018. As a percentage of net revenues, cost of revenues was 47.5% in 2018 compared to 46.7% in 2017.
Operating Expenses. Operating expenses decreased by 25.7% from RMB2,051.3 million in 2017 to RMB1,524.1 million (US$221.7
million) in 2018, due to decreases in sales and marketing expenses, research and product development expenses and general and administrative
expenses, and the increase in other operating income.
(cid:120)
(cid:120)
Research and product development. Research and product development expenses decreased by 41.7% from RMB541.1 million in
2017 to RMB315.2 million (US$45.8 million) in 2018, primarily due to the increase in efficiency resulting from economies of scale
and refined management, and optimization of research and product development personnel.
Sales and marketing. Sales and marketing expenses decreased by 13% from RMB894.1 million in 2017 to RMB778.1 million
(US$113.2 million) in 2018. The decrease was primarily due to the optimization of promotional expense structure and preference for
marketing channels with higher ROI.
(cid:120) General and administrative. General and administrative expenses decreased by 23.6% from RMB637.8 million in 2017 to RMB487.4
million (US$70.9 million) in 2018, primarily due to increase in operating efficiency resulting from economies of scale and refined
management.
(cid:120) Other operating income. Other operating income increased from RMB21.7 million in 2017 to RMB56.6 million (US$8.2 million) in
2018.
Net Loss. As a result of the foregoing, net loss decreased from RMB771.3 million in 2017 to RMB199.4 million (US$29.0 million) in
2018.
72
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Net Revenues. Net revenues were RMB10,530.9 million and RMB2,192.1 million in 2016 and 2017, respectively. The year-over-year
decrease was mainly driven by the change of our roles into an agent for organized tours in 2017 and hence the adoption of the net basis revenue
recognition for most of the organized tours, while substantially all revenues from organized tours for 2015 and 2016 were recognized on a gross
basis as we were primary obligor for the organized tours services up to the end of 2016. On a comparable net basis whereby revenues for 2015 and
2016 are adjusted by deducting the amount we paid to travel suppliers to reflect revenues from organized tours on a net basis and applying the
timing of revenue recognition as in 2017, we generated comparable amount of net revenues of RMB1,430.3 million and RMB2,192.1 million in
2016 and 2017. The growth of our net revenue on comparable net basis was principally driven by the increase in travellers’ booking of packaged
tours and other revenues.
(cid:120)
Revenues from packaged tours. Revenues from packaged tours are mainly recognized on a net basis in 2017. Since the beginning of
2017, we have implemented certain changes in our arrangements with the tour operators. Our role in the organized tour arrangements
has changed from being a principal into an agent that provides tour booking services to the tour operators and travellers. As a result of
the change of our role, revenue from the organized tours for 2017 was mainly recognized on a net basis. Under ASC 606, “Revenue
from Contracts with Customers”, substantially all revenues from our organized tours for the year ended December 31, 2016 continued
to be recognized on a gross basis because of our principal role for these organized tours up to the end of 2016. In addition, under ASC
606, “Revenue from Contracts with Customers”, revenues from organized tours for the years 2015 and 2016 were recognized over the
period of the tours, and revenues from organized tours for 2017 were recognized when the tours depart. The year-over-year decrease in
revenues from packaged tours was mainly due to the change from the gross basis to a net basis revenue recognition. To increase
comparability of operating results and aid investors to better understand our business performance and operating trends from 2016 to
2017, we adjusted the revenue in 2016 to a comparable net basis by deducting the amount we paid to travel suppliers and applying the
timing of revenue recognition as in 2017. The comparable amount for revenues from packaged tours of RMB10,147.1 million in 2016
was RMB1,061.3 million. On the comparable basis, our packaged revenues increased by 49.8% from RMB1,061.3 million in 2016 to
RMB1,589.4 million in 2017. The increase was primarily due to the growth of organized tours and self-guided tours.
(cid:120) Other revenues. Other revenues increased by 50.3% from RMB401.1 million in 2016 to RMB602.7 million in 2017, primarily due to a
rise in revenues generated from financial services and commission fees received from certain other travel-related products.
Cost of Revenues. Prior to January 2017, a substantial majority of the cost of revenues was the amounts paid to travel suppliers for the sale
of the relevant organized tour products to customers. On the net basis of revenue recognition in 2017, the amounts we paid to travel suppliers for
packaged tours are mainly recorded as a reduction to revenues, rather than cost of revenues. Such change caused the significant decrease in cost of
revenues from 2016 to 2017. To increase comparability of operating results and aid investors to better understand our business performance and
operating trends, we adjusted the cost of revenues in 2016 to a comparable net basis by deducting the amount we paid to travel suppliers from
RMB9,891.7 million and our adjusted cost of revenues in 2016 was RMB785.1 million. On the comparable basis, our cost of revenues increased by
30.5% from RMB785.1 million in 2016 to RMB1,024.2 million in 2017. As a percentage of our net revenues on the comparable basis, our cost of
revenues was 46.7% in 2017 compared to 54.9% in 2016.
Operating Expenses. Operating expenses decreased by 34.6% from RMB3,138.3 million in 2016 to RMB2,051.3 million in 2017, due to
decreases in sales and marketing expenses, research and product development expenses and general and administrative expenses, and partially offset
by the decrease in other operating income.
(cid:120)
(cid:120)
Research and product development. Research and product development expenses decreased by 10.0% from RMB601.4 million in
2016 to RMB541.1 million in 2017, primarily due to the increase in efficiency resulting from economies of scale and implementation
of operation systems, and optimization of research and product development personnel.
Sales and marketing. Sales and marketing expenses decreased by 53.0% from RMB1,900.4 million in 2016 to RMB894.1 million in
2017. The decrease was primarily due to the decline in brand promotions and preference for marketing channels with higher ROI.
(cid:120) General and administrative. General and administrative expenses decreased by 3.2% from RMB658.8 million in 2016 to RMB637.8
million in 2017, primarily due to increase in efficiency resulting from economies of scale and optimization of administrative personnel.
(cid:120) Other operating income. Other operating income decreased from RMB22.3 million in 2016 to RMB21.7 million in 2017.
Net Loss. As a result of the foregoing, net loss decreased from RMB2,422.3 million in 2016 to RMB771.3 million in 2017.
73
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 2016, 2017 and 2018 were increases of 2.1%,
1.8% and 1.9%, 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 RMB6.8755
per U.S. dollar as of December 31, 2018. For the year ended December 31, 2018, we recorded RMB11.7 million (US$1.7 million) of net foreign
currency translation income in accumulated other comprehensive income as a component of shareholders’ equity. We have not hedged exposures to
exchange fluctuations using any hedging instruments. See also “Item 3.D. Key Information—Risk Factors—Fluctuations in exchange rates could
have a material adverse effect on our results of operations and the value of your investment” and “Item 11. Quantitative and Qualitative Disclosures
about Market Risk—Foreign Exchange Risk.”
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP. In doing so, we have to make estimates and assumptions
that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. To the
extent that there are material differences between these estimates and actual results, our financial condition or operating results and margins would
be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we
evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we
discuss further below.
Business combination
U.S. GAAP requires that all business combinations not involving entities or businesses under common control be accounted for under the
purchase method. We have adopted ASC 805 “Business Combinations”, and the cost of an acquisition is measured as the aggregate of the fair values
at the date of exchange of the assets given, liabilities incurred and equity instruments issued. The transaction costs directly attributable to the
acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair
value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of the (i) the total of cost of acquisition, fair
value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of
the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognized directly in the consolidated statements of operations and comprehensive income.
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions
and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, the
number of years on which to base the cash flow projections, as well as the assumptions and estimates used to forecast the future cash inflows and
outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry
comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period.
Although management believes that the assumptions applied in the determination are reasonable based on information available at the date of
acquisition, actual results may differ from the forecasted amounts and the difference could be material. We recognized adjustments to provisional
amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.
A noncontrolling interest is recognized to reflect the portion of a subsidiary’s equity which is not attributable, directly or indirectly, to the
Company. Consolidated net loss on the consolidated statements of comprehensive loss includes the net 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.
Subsequent to the initial measurement of acquisition, adjustments to the amount of contingent consideration are recognized as a gain or loss
during the period of adjustments, and are reflected in other operating income.
74
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, 2016,
2017 and 2018.
Land use right
Land use right represents the payments for usage of land for office buildings, which is recorded at cost less accumulated amortization.
Amortization is provided on a straight-line basis over their respective lease period which is 49.
Long-term investments
Long-term investments include equity investments, held-to-maturity investments and other long-term investments.
Equity investments
We account for the investments in entities with significant influence under equity-method accounting. Under this method, our pro rata
share of income (loss) from an investment is recognized in the consolidated statements of comprehensive loss. Dividends received reduce the
carrying amount of the investment. Equity-method investment is reviewed for impairment by assessing if the decline in fair value of the investment
below the carrying value is other-than-temporary. In making this determination, factors are evaluated in determining whether a loss in value should
be recognized. These include consideration of our intent and ability to hold investment and the ability of the investee to sustain an earnings capacity,
justifying the carrying amount of the investment. Impairment losses are recognized when a decline in value is deemed to be other-than-temporary.
We adopted the ASU 2016-01 at January 1, 2018. Upon adoption of the ASU 2016-01, we elect a measurement alternative for equity
investments that do not have readily determinable fair values and where we do not have the ability to exercise significant influence over operating
and financial policies of the entity. Under the measurement alternative, we measured these investments at cost, less any impairment, plus or minus
changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. An impairment loss
is recognized in the consolidated statements of comprehensive loss equal to the excess of the investment's cost over its fair value when the
impairment is deemed other-than-temporary.
Held-to-maturity investments
The investments that we intend and are able to hold to maturity are classified as held-to-maturity investments and are stated at amortized
cost, and interest income is recorded in the consolidated statements of comprehensive income. We monitor our investments for other-than-
temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of
the companies including current earnings trends and other company-specific information.
Other long-term investments
Other long-term investments include financial products with maturities over one year and securities including perpetual bonds and
preferred shares issued by companies, which are carried at their fair value at each balance sheet date and changes in fair value are reflected in the
consolidated statements of operations and comprehensive income.
No event had occurred and indicated that an other-than-temporary impairment existed and therefore we did not record any impairment
charges for our investments for the years ended December 31, 2016, 2017 and 2018.
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 performed goodwill impairment test and no impairment loss was recognized for the years ended December 31, 2016,
2017 and 2018.
75
Revenue Recognition
We generate revenues primarily from sales of packaged tours and other service fees.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which
amends the existing accounting standards for revenue recognition. Subsequently, the FASB issued several amendments which amends certain
aspects of the guidance in ASC 2014-09 (ASU No. 2014-09 and the related amendments are collectively referred to as “ASC 606”). According to
ASC 606, revenue is recognized when control of the promised services is transferred to our customers, in an amount that reflects the consideration
we expect to be entitled to in exchange for those services. We adopted this new revenue standard effective on January 1, 2017 by applying the full
retrospective method. There are no significant estimates in our revenue arrangements.
Packaged tours
Packaged tours include organized tours which offer pre-arranged itineraries, transportations, accommodations, entertainments, meals and
tour guide services; and self-guided tours which consist of combinations of air tickets and hotel bookings and other optional add-ons, such as airport
pick-ups that the travellers choose at their discretion.
Prior to January 2017, substantially all of our revenues from organized tours were recognized on a gross basis, which represented amounts
charged to and received from travellers (who were our customers). We were the primary obligor in the organized tour arrangements and bore the
risks and rewards, including the travellers’ acceptance of products and services delivered. Even though we did not generally assume the substantive
inventory risk before travellers placed an order, we were the party retained by and paid by the travellers, and we were responsible to (and solely
authorized to) refund travellers their payments in situations of customer disputes. Further, we independently selected travel service suppliers, and
determined the prices charged to customers and paid to its travel suppliers.
Since the beginning of 2017, we have implemented certain changes in our arrangements with the tour operators. Our role in the organized
tour arrangements has changed from being a principal into an agent that provides tour booking services to the tour operators and travellers. Under
the current organized tour arrangements, the tour operators are primarily responsible for all aspects of providing services relating to the tour and
responsible for the resolution of customer disputes and any associated costs. As a result of the change of our role, starting from January 1, 2017,
revenues from organized tours (except for those that we take substantive inventory risk and the self-operated local tour operators in which we act as
a principal, as discussed below) are generally reported on net basis, representing the difference between what we receive from the travellers and the
amounts due to the tour operators.
Revenues from self-guided tours are recognized on a net basis, as we have no involvement in determining the service, and provide no
additional services to travellers other than the booking services. Suppliers are responsible for all aspects of providing the air transportation and hotel
accommodation, and other travel-related services. As such, we are an agent for the travel service providers in these transactions and revenues are
reported on a net basis.
Under certain circumstances, we may enter into contractual commitments with suppliers to reserve tours, and are required to pay a deposit
to ensure tour availabilities. Some of these contractual commitments are non-cancellable, and to the extent the reserved tours are not sold to
customers, we would be liable to pay suppliers a pre-defined or negotiated penalty, thereby assuming inventory risks. For packaged tour
arrangements that we undertake inventory risk which is considered to be substantive, revenues are recognized on gross basis. Revenues for such
arrangements that we undertake substantive inventory risk were RMB497.9 million and RMB241.2 million (US$35.1 million) for the year ended
December 31, 2017 and 2018, which were recorded in revenues for packaged tours.
In 2018, we expanded our self-operated local tour operators in various destinations by directly providing destination-based services to our
organized tour customers, starting from their arrival at the destination and all the way until they depart from the destination. As a self-operated local
tour operator, we integrate the underlying resources such as transportations, accommodations, entertainments, meals and tour guide services from
selected suppliers, direct the selected vendors to provide services on our behalf, and hence set up the price for the tour. Besides, we are primarily
responsible for fulfilling the promise of the whole packaged tours service, which is a single performance obligation. Accordingly, we are a principal
for the self-operated local tour operator business and recognize revenue on a gross basis in accordance with ASC 606. Revenues from our self-
operated tour operator business are recognized over time during the period of the tours when control over the tour services is transferred to the
customers. Revenues for the self-operated local tour operator business were RMB509.7 million (US$74.1 million) for the year ended December 31,
2018, which were recorded in revenues for packaged tours.
Under ASC 606, revenues from organized tours for which we were a principal for year 2016 were recognized over the period of the tours
when control over the tour services was transferred to the customers over such period. Starting from January 1, 2017, under the current
arrangements for the organized tours (except for the self-operated local tour operators in which we act as a principal, as discussed above), for which
our role was changed into an agent, revenues are recognized when the tours depart, as control over the tour booking services is transferred to the
customers when the tour booking is completed and successful.
Under ASC 606, revenues from self-guided tours are recognized when the tours depart.
76
Other revenues
Our other revenues primarily comprise revenues generated from (i) service fees received from insurance companies, (ii) commission fees
from other travel-related products and services, such as tourist attraction tickets, visa application services, accommodation reservation and
transportation ticketing, (iii) fees for advertising services that we provide primarily to domestic and foreign tourism boards and bureaus, (iv) service
fees for financial services and interest income for yield enhancement products. Revenue is recognized when the services are rendered or when the
tickets are issued.
We commenced the financial business 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 service fees which were recorded as other
revenue upon the delivery of service. In addition, in certain cases, we purchased yield enhancement products with maturities ranging from three
months to two years from the Exchanges and trust companies and split these products into smaller amount yield enhancement products with lower
yield rate and shorter maturities within one year, which were offered to individual investors through our online platform. The split of the products
were arranged by the Exchanges. Interest revenues were recorded as other revenues and the relevant interest costs were recorded as cost of revenue.
In 2018, we terminated the offering of yield enhancement products and have no related balances as of December 31, 2018.
We also provided account receivables factoring service and cash lending service to customers, and fees charged in connection with these
financial services were recorded as other revenue over the period of the service rendered.
Customer incentives
We offer travellers coupons, travel vouchers, membership points or cash rewards from time to time. For customer incentives offered where
prior purchase is not required, we account for them as a reduction of revenue when the coupons and vouchers are utilized to purchase travelling
products or as selling and marketing expenses when membership points are redeemed for merchandises. For customer incentives offered from prior
purchase, we estimate the amount associated with the future obligation to the customers, and record them as a reduction of revenue when the prior
purchase revenue is initially recognized. Unredeemed customer incentives are recorded in other current liabilities in the consolidated balance sheets.
We estimate liabilities under the customer loyalty program based on accumulated customer incentives, and the estimate of probability of redemption
in accordance with the historical redemption pattern. The actual expenditure may differ from the estimated liability recorded.
Research and Product Development Expenses
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 related expenses and travel-related expenses for our research and product
development team. 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 maintenance of
the existing websites or software for internal use. Certain costs associated with developing internal use software are capitalized when such costs are
incurred within the application development stage of software development.
Income Taxes
Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and expense items
which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions. Deferred income
taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The
effect on deferred taxes of a change in tax rates is recognized in the statement of comprehensive loss in the period of change. A valuation allowance
is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets
will not be realized.
77
U.S. GAAP 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. As of December 31, 2017 and 2018, 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 and restricted shares 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 RMB92.4 million, RMB98.7 million and RMB68.7 million (US$10.0 million) in 2016, 2017 and 2018, respectively. The
estimates we used to determine the fair value of these options in computing our share-based compensation expense are determined on the respective
grant dates, and will not change when the underlying shares begin trading because our options are equity classified awards.
78
The following table sets forth the options granted under the 2008 Plan and the 2014 Plan in 2016, 2017 and 2018:
Number
of
Options
Granted
320,000
70,000
4,360,000
3,453,575
403,332
168,214
25,300
80,000
2,848,503
4,855,500
Exercise Price
US$
0.0001
2.97
2.68
2.68
0.0001
0.0001
2.72
2.72
1.67
1.67
RMB(2)
0.0007
20.62
18.61
18.61
0.0007
0.0007
17.7
17.7
11.48
11.48
Fair Value
of Option
as of the
Grant Date
US$
2.97
1.57
1.59
1.44
2.92
2.76
1.39
1.55
1.35
1.24
RMB(2)
20.60
10.90
11.04
10.00
19.00
17.96
9.04
10.08
9.28
8.53
Fair Value of
the Underlying
Ordinary
Shares as of the
Grant Date
US$
2.97
2.97
2.68
2.68
2.92
2.72
2.72
2.72
2.21
2.21
RMB(2)
20.62
20.62
18.61
18.61
19.00
17.7
17.7
17.7
15.19
15.19
Intrinsic Value
as of the Grant
Date
US$
2.97
—
—
—
2.92
2.72
—
—
0.54
0.54
RMB(2)
20.62
—
—
—
19.00
17.7
—
—
3.71
3.71
Type of Valuation
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
Contemporaneous
May 27, 2016(1)
May 27, 2016(1)
December 2, 2016(1)
December 2, 2016(1)
January 1, 2017
June 12, 2017
June 12, 2017(1)
June 12, 2017(1)
May 8, 2018(1)
May 8, 2018(1)
(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 RMB6.9430 to US$1.00, the exchange rate in effect as of December 30,
2016 for the options granted before December 31, 2016, and at a rate of RMB6.5063 to US$1.00, the exchange rate in effect as of December
29, 2017 for the options granted before December 31, 2017, and at a rate of RMB6.8755 to US$1.00, the exchange rate in effect as of
December 31, 2018 for the options granted after January 1, 2018 (including January 1, 2018) solely for the convenience of the readers.
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)
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.
79
(cid:120)
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)
(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.
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.
80
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.
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.
81
Significant Factors Contributing to the Difference in Fair Value Determined
The determined fair value of our ordinary shares increased from US$0.91 per share as of December 16, 2012 to US$1.20 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 per share as of August 1, 2013 to US$1.82 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:
(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 per share as of November 30, 2013 to US$3.33 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.
82
Recent Accounting Pronouncements
See Note 2(af) to our consolidated financial statements included elsewhere in this annual report for discussion on recent issued accounting
pronouncements.
B.
Liquidity and Capital Resources
Our primary sources of liquidity have been proceeds from operating activities, private issuances of ordinary and preferred shares, and our
initial public offering.
Prior to the completion of our initial public offering in May 2014, we financed our operations primarily through cash generated from our
operating activities, private issuances and sales of preferred shares. In May 2014, we completed our initial public offering in which we issued and
sold 8,580,000 ADSs representing 25,740,000 Class A ordinary shares. Concurrently with our initial public offering, we issued and sold 5,000,000,
5,000,000 and 1,666,666 Class A ordinary shares to each of DCM Hybrid RMB Fund, L.P., Ctrip Investment Holding Ltd. and Qihoo 360
Technology Co. Ltd., respectively. As a result of our initial public offering and such concurrent private placements, we raised an aggregate of
approximately US$106.3 million (RMB659.5 million) in proceeds, net of underwriting commissions.
In December 2014 we entered into a share subscription agreement with Unicorn Riches Limited, JD.com E-commerce (Investment) Hong
Kong Corporation Limited, Ctrip Investment Holding Ltd. and the respective personal holding companies of Tuniu’s chief executive officer and
chief operating officer, pursuant to which we sold a total of 36,812,868 newly issued class A ordinary shares. As a result of this sale, we raised an
aggregate of approximately US$148.0 million (RMB918.3 million) in proceeds.
In May 2015, we entered into share subscription agreements with each of Fabulous Jade Global Limited, a subsidiary of JD.com, Inc.,
Unicorn Riches Limited, a special purpose vehicle of Hony Capital, DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo
Affiliates Fund, L.P., both affiliates of DCM V, L.P., Ctrip Investment Holding Ltd., a subsidiary of Ctrip.com International, Ltd., Esta Investments
Pte Ltd, an affiliate of Temasek Holdings and Sequoia Capital 2010 CV Holdco, Ltd, an affiliate of Sequoia Capital, pursuant to which we sold a
total of 93,750,000 newly issued Class A ordinary shares. As a result of this sale, we raised an aggregate of approximately US$400.0 million in
proceeds and JD.com, Inc.’s business resources.
In November 2015, we entered into a strategic partnership with HNA Tourism, as part of which an affiliate of HNA Tourism purchased
90,909,091 newly issued Class A ordinary shares from us for an aggregate of approximately US$500 million in January 2016.
Generally, our customers pay us upon contract confirmation, which is usually more than one month before the departure dates, and we pay
the 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 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 travel suppliers to secure packaged tours during peak seasons.
83
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB
Emerging Issues Task Force)” (“ASU 2016-18”), which amends ASC 230 to add or clarify guidance on the classification and presentation of
restricted cash in the statement of cash flows. Effective from January 1, 2018, we adopted the new guidance which primarily requires that restricted
cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period
total amounts shown on the statement of cash flows. In addition, transfers between cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents are not part of the entity’s operating, investing, and financing activities, and details of those transfers
are not reported as cash flow activities in the statement of cash flows. As a result of the foregoing, the changes in restricted cash in the consolidated
cash flows were RMB214.4 million and RMB32.8 million for the years ended December 31, 2016 and 2017, respectively, which were no longer
presented within investing activities and were retrospectively included in the changes of cash, cash equivalents and restricted cash as required. As of
December 31, 2018, our total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows include cash and cash
equivalents of RMB560.4 million (US$81.5 million) and restricted cash of RMB270.7 million (US$39.4 million) within the consolidated balance
sheets.
Our advances from customers decreased from RMB1,806.5 million as of December 31, 2016 to RMB1,210.6 million as of December 31,
2017, and further decreased to RMB1,058.9 million (US$154.0 million) as of December 31, 2018, which was primarily due to the change in
customers’ prepayment habits. Accounts and notes payable decreased from RMB1,022.7 million as of December 31, 2016 to RMB852.5 million as
of December 31, 2017. Accounts and notes payable increased from RMB852.5 million as of December 31, 2017 to RMB1,305,6 million (US$189.9
million) as of December 31, 2018 which was primarily due to the application of combination settlement. Furthermore, prepayments and other
current assets decreased from RMB1,632.3 million as of December 31, 2016 to RMB939.5 million as of December 31, 2017 primarily due to the
technology improvement which shortened our payment cycle to suppliers, and increased to RMB1,673.6 million (US$243.4 million) as of
December 31, 2018 which was primarily because we strengthened our supply chain financing cooperation to our suppliers. Moreover, our sales and
marketing expenses decreased from RMB1,900.4 million in 2016 to RMB894.1 million in 2017 which was primarily attributable to the decline in
brand promotions and preference for marketing channels with higher ROI, and further decreased to RMB778.1 million (US$113.2 million) in 2018
which was primarily due to the optimization of promotional expense structure and preference for marketing channels with higher ROI. As a result,
our net cash used in operating activities were RMB2,239.4 million and RMB418.6 million in 2016 and 2017 respectively, and our net cash provided
by operating activities was RMB268.1 million (US$39.0 million) in 2018.
Our principal uses of cash for the years ended December 31, 2016, 2017 and 2018 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, 2016, 2017 and 2018, we had RMB4,813.3 million, RMB3,660.5 million and
RMB1,690.2 million (US$245.8 million) in cash, cash equivalents, restricted cash and short-term investments, respectively. We had credit from
several Chinese commercial banks. As of December 31, 2018, our outstanding short-term borrowings (including outstanding discounted bank
acceptance notes) were RMB191.3 million (US$27.8 million) and our outstanding long-term borrowings were RMB4.5 million (US$0.7 million).
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 had net losses attributable to Tuniu Corporation of approximately RMB2,407.2 million, RMB767.3 million and RMB185.5 million
(US$27.0 million) for the years ended December 31, 2016, 2017 and 2018, respectively. Net cash used in operating activities were approximately
RMB2,239.4 million and RMB418.6 million for the years ended December 31, 2016 and 2017 respectively, and net cash provided by operating
activities was RMB268.1 million (US$39.0 million) for the years ended December 31, 2018. Accumulated deficit was RMB4,738.6 million,
RMB5,505.9 million and RMB5,691.4 million (US$827.8 million) as of December 31, 2016, 2017 and 2018, respectively. We believe that our
current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for at least the
next 12 months. We may require additional cash due to unanticipated business conditions or other future developments. If our existing cash is
insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or secure debt funding from financial
institutions.
The following table sets forth a summary of our cash flows for the periods presented:
Net cash (used in)/provided by operating activities
Net cash (used in)/provided by investing activities
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
Net (decrease)/increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of year
Cash, cash equivalents and restricted cash at the end of year
For the Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
US$
(2,239,444)
(2,728,683)
3,627,058
110,652
(1,230,417)
2,440,214
1,209,797
(in thousands, except percentages)
268,089
153,992
(145,212)
(418,649)
615,554
(784,766)
(46,025)
(633,886)
1,209,797
575,911
(21,754)
255,115
575,911
831,026
38,992
22,398
(21,122)
(3,164)
37,104
83,763
120,867
84
Operating Activities
Our net cash provided by operating activities was RMB268.1million (US$39.0 million) in 2018, primarily attributable to cash inflows from
sales of our travel products and services of RMB20,575.3 million (US$2,992.6 million) and cash inflows from other operating activities such as
deposits, interest income and government subsidies of RMB290.2 million (US$42.2 million), that were offset by cash outflows due to payments to
travel suppliers of RMB18,837.1 million (US$2,739.7 million), payments relating to other operating activities, which include payments to
employees and for employees’ benefits of RMB1,061.5 million (US$154.4 million), payments for marketing and promotional activities, office rental
and utilities and professional services of RMB605.3 million (US$88.1 million), and payments of taxes and levies of RMB93.5 million (US$13.6
million).
Our net cash used in operating activities was RMB418.6 million in 2017, primarily attributable to cash inflows from sales of our travel
products and services of RMB21,593.0 million and cash inflows from other operating activities such as deposits, interest income and government
subsidies of RMB165.4 million, that were offset by cash outflows due to payments to travel suppliers of RMB19,708.8 million payments relating to
other operating activities, which include payments for marketing and promotional activities, office rental and utilities and professional services, of
RMB1,101.4 million, payments to employees and for employees’ benefits of RMB1,329.6 million and payments of taxes and levies of RMB37.2
million
Our net cash used in operating activities was RMB2,239.4 million in 2016, primarily attributable to cash inflows from sales of our travel
products and services of RMB20,276.5 million and cash inflows from other operating activities such as deposits, interest income and government
subsidies of RMB105.1 million, that were offset by cash outflows due to payments to travel suppliers of RMB19,512.4 million, payments relating to
other operating activities, which include payments for marketing and promotional activities, office rental and utilities and professional services, of
RMB1,733.2 million, payments to employees and for employees’ benefits of RMB1,337.2 million and payments of taxes and levies of RMB38.2
million.
Investing Activities
Our net cash provided by investing activities was RMB154.0 million (US$22.4 million) in 2018, primarily attributable to the proceeds from
the maturity of short-term investments of RMB4,067.8 million (US$591.6 million), the proceeds from maturity of yield enhancement products of
RMB172.5 million (US$25.1 million), the proceeds from maturity of long-term investments of RMB91.0 million (US$13.2 million), cash received
from disposal of equity investments of RMB3.1 million (US$0.5 million), which were offset by the purchase of short-term investments of
RMB1,858.0 million (US$270.2 million), the increase in loan receivable of RMB1,326.2 million (US$192.9 million), the purchase of property and
equipment and intangible assets of RMB119.4 million (US$17.4 million), the cash paid for long-term investment of RMB874.1 million (US$127.1
million), and cash paid for acquisition (net of cash received) of RMB2.7 million (US$0.4 million).
Our net cash provided by investing activities was RMB615.6 million in 2017, primarily attributable to the proceeds from the maturity of
short-term investments of RMB3,271.9 million , the proceeds from maturity of yield enhancement products of RMB435.0 million, partially offset
by the purchase of short-term investments of RMB2,488.0 million, the increase in loan receivable of RMB16.4 million, the purchase of property and
equipment and intangible assets of RMB160.5 million, and the cash paid for long-term investment of RMB426.2 million.
Our net cash used in investing activities was RMB2,728.7 million in 2016, primarily attributable to the purchase of short-term investments
of RMB5,097.3 million, the purchase of financial products of RMB807.2 million, the business acquisition of RMB16.5 million, the purchase of
property and equipment and intangible assets of RMB117.9 million, the cash paid for loans of RMB18.0 million and the cash paid for long-term
investment of RMB57.5 million, partially offset by the proceeds from the maturity of short-term investments of RMB2,847.3 million, the proceeds
from maturity of financial products of RMB538.5 million.
Financing Activities
Our net cash used in financing activities in 2018 was RMB145.2 million (US$21.1 million) primarily attributable to RMB171.4 million
(US$24.9 million) we paid in due course for redemption of the yield-enhancement products, RMB139.1 million (US$20.2 million) we paid for share
repurchase, RMB6.8 million (US$1.0 million) we paid for deferred and contingent consideration of business acquisitions made in previous years,
RMB30.0 million (US$4.4 million) we paid to redeem non-controlling interests, and RMB0.4 million(US$0.1 million) we paid as repayment of
short-term borrowing, which were offset by RMB195.8 million (US$28.5 million) proceeds from short-term and long-term borrowings, RMB4.6
million (US$0.7 million) proceeds from employees exercising stock options, and RMB2.1 million (US$0.3 million) proceeds contribution from
noncontrolling interests shareholders.
85
Our net cash used in financing activities in 2017 was RMB784.8 million primarily attributable to repayment of RMB682.8 million
collected from the sales of yield-enhancement products to individual investors on our website, payment of share repurchase of RMB166.1 million
and the deferred and contingent consideration paid for prior year business acquisitions of RMB6.8 million, partially offset by RMB67.3million
proceeds from employees exercising stock options and proceeds contribution from noncontrolling interests shareholders of RMB3.6 million.
Our net cash provided by financing activities in 2016 was RMB3,627.1 million primarily attributable to the net proceeds from our private
placement of RMB3,275.9 million (net of issuance cost of RMB3.4 million), funds of RMB274.7 million collected from the sales financial products
to individual investors on our website, RMB8.5 million proceeds from employees exercising stock options and proceeds contribution from
noncontrolling interests shareholders of RMB90 million, partially offset by payment of share repurchase of RMB19.7 million and the deferred and
contingent consideration paid for prior year business acquisitions of RMB2.3 million.
Capital Expenditures
Cash outflow in connection with capital expenditures amounted to RMB117.9 million, RMB160.5 million and RMB119.4 million
(US$17.4 million) in 2016, 2017 and 2018, respectively. Our capital expenditures were primarily used to purchase equipment and intangible assets
and payment for land use right for our business. As of December 31, 2018, capital commitments relating to leasehold improvement, purchase of
equipment and construction of office building were approximately RMB15.1 million (US$2.2 million).
Holding Company Structure
We are a holding company with no material operations of our own. We conduct our operations primarily through our wholly owned
subsidiaries and consolidated affiliated entities in China. As a result, our ability to pay dividends to our shareholders depends upon dividends paid
by our PRC subsidiaries. If our PRC subsidiaries or any newly formed PRC subsidiaries incur debt on their own behalf in the future, the instruments
governing their debt may restrict their ability to pay dividends to us. In addition, our PRC subsidiaries are permitted to pay dividends to us only out
of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our
subsidiaries and our consolidated affiliated entities in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund
certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each of our subsidiaries and consolidated
affiliated entities in China may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds at its
discretion. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. As our PRC subsidiaries and consolidated
affiliated entities have incurred losses, they have not started to contribute to the reserve funds and staff welfare and bonus funds. Our PRC
subsidiaries have never paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for
statutory reserve funds.
C.
Research and Development
We have built our technology infrastructure with high levels of performance, reliability, scalability and security. We rely on internally
developed proprietary technologies and licensed technologies to manage and improve our website, mobile platform and management systems. We
have a team of engineers dedicated to research and development in the areas of website operations, mobile platform, search engine, data analytics
and supply chain management system.
Research and product development expenses primarily comprise salaries and other compensation expenses for our research and product
development personnel as well as office rental, depreciation and other expenses related to our research and product development function. Research
and product development expenses also include expenses that are incurred in connection with the planning and implementation phases of
development and costs that are associated with the maintenance of our online platform or software for internal use. Our research and product
development expenses were RMB601.4 million, RMB541.1 million and RMB315.2 (US$45.8) million in 2016, 2017 and 2018, respectively, which
decreased year-over-year primarily due to the increase in efficiency resulting from economies of scale and refined management, and optimization of
research and product development personnel. We expect no significant increase in research and product development expenses as the results of our
continual research and product development efforts and increase in efficiency.
86
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, 2018 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, 2018.
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
217,258
15,079
232,337
101,947
15,079
117,026
109,475
—
109,475
5,089
—
5,089
747
—
747
(1)
(2)
Operating lease obligations represent our obligations for the leased premises of our headquarter and offline retail stores.
Purchase obligations consist primarily of contractual commitments in connection with leasehold improvements and the installation of
equipment for our headquarter and offline retail stores.
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 not 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
Cindy Chen
Frank Lin
Tao Yang
Onward Choi
Jack Xu
Shengli Hu
Maria Yi Xin
Shihong Chen
Wei Zhang
Age
Position/Title
38
37
43
38
44
55
43
48
52
47
34
36
53
Founder, Chairman and Chief Executive Officer
Director
Director
Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Chief Financial Officer
Chief Technology Officer
Executive Vice President
87
Mr. Dunde Yu is our 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 has served as our director since our inception. Mr. Yan is the founder and Chief Executive Officer of Black Fish Group
Limited. Mr. Yan co-founded Tuniu in 2006 and previously served as our Chief Operating Officer and President until November 2017. Prior to
founding Tuniu, Mr. Yan was one of the founding members and Chief Operating Officer of ci123.com, a leading childcare website in China, from
2005 to 2006. Prior to that, 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 General Manager of Discipline Inspection and
Supervision Department in HNA Aviation 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 and CEO of HNA
Tourism Group, before being named Chairman of China Civil Aviation Investment Group Limited in December 2016. Mr. Li has extensive
experience in the fields of investment, finance and legal matters in connection with the travel and tourism industry. Mr. Li holds a bachelor’s degree
from Anhui University.
Mr. Jie Zhu has served as our director since February 2016. Currently, Mr. Zhu serves as a member of the board of directors and chairman
of HNA Hospitality Group. After joining HNA Tourism Group in 2011, Mr. Zhu headed the investment and securities business divisions of HNA
Tourism Group and its subsidiary Beijing Tourism Investment Fund. Mr. Zhu holds an MBA from Glendon-York University.
Ms. Cindy Chen has served as our independent 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 independent director since December 2009. Mr. Lin is a general partner of DCM, a technology venture
capital firm. Prior to joining DCM in 2006, Mr. Lin was chief operating officer of Sina Corporation, a Nasdaq-listed company. He co-founded
SINA’s predecessor, SinaNet, in 1995 and later guided SINA through its listing on Nasdaq. Mr. Lin had also held various marketing, engineering
and managerial positions at Octel Communication Inc. and NYNEX. Mr. Lin currently serves on the board of directors of various DCM portfolio
companies, including Vipshop Holdings Limited, China Online Education Group (51 Talk.com), and 58.com Inc., which are NYSE-listed
companies. Mr. Lin received an MBA degree from Stanford University and a bachelor’s degree in engineering from Dartmouth College.
88
Mr. Tao Yang has served as our independent director since May 2017. Mr. Tao Yang currently serves as Senior Vice President of
Ctrip.com International, Ltd in charge of its Travel Business Unit. Mr. Yang has held a number of technical and managerial positions after joining in
Ctrip.com in 2000. Mr. Yang received an EMBA degree from China Europe International Business School and a bachelor's degree in mechanical
engineering from Shanghai Jiaotong University.
Mr. Onward Choi has served as our independent director since May 2014. Mr. Choi was the acting chief financial officer of NetEase Inc., a
Nasdaq-listed company, from July 2007 to June 2017. Mr. Choi currently serves as an independent non-executive director and the chairman of the
audit committee of Beijing Jingkelong Company Limited (HKEX: 0814) and Wise Talent Information Technology Company Limited (HKEX:
6100), both of which are listed on the Hong Kong Stock Exchange. Mr. Choi is a fellow member of the Association of Chartered Certified
Accountants, CPA Australia, and the Hong Kong Institute of Certified Public Accountants. Mr. Choi received a bachelor’s degree in accountancy
with honors from the Hong Kong Polytechnic University.
Mr. Jack Xu has served as our independent director since May 2014. Mr. Xu is the managing partner at Seven Seas Venture Partners. Mr.
Xu served as President and Chief Technology Officer of Sina Corporation, a Nasdaq-listed company, from January 2013 to February 2015. Prior to
joining Sina Corporation, Mr. Xu worked at Cisco as the Corporate Vice President of the Communications and Collaboration business unit.
Previously, Mr. Xu served as Vice President of Engineering and Research at eBay from October 2002 to April 2008 and Chief Technology Officer
at NetEase from May 2000 to July 2002. He led Excite’s search engine development in 1996, while pursuing a Ph.D. at the University of California
at Berkeley. Mr. Xu received a bachelor’s degree and a master’s degree in information management from Sun Yat-Sen University in China.
Mr. Shengli Hu has served as our independent director since May 2017. Mr. Hu is president of JD Fashion and Lifestyle, and a senior vice
president of JD.com. He is responsible for JD’s fashion, home furnishing, luxury products and cosmetics businesses. Mr. Hu has led JD’s fashion
and lifestyle business since 2018 focusing on creating a global fashion and luxury ecosystem based on the idea that “fashion is boundaryless”. Mr.
Hu has played a key role in JD’s strategic partnerships with Xinyu Group, Secoo, Ruyi and Farfetch. Mr. Hu joined JD.com in 2014, and previously
served as president of JD Electronics and Lifestyle. Mr. Hu received a master’s degree in business administration from Hunan University.
Ms. Maria Yi Xin has served as our chief financial officer since November 2017. Ms. Xin joined Tuniu in 2013 and has over 10 years of
experience in corporate finance and capital markets with US-listed companies. While at Tuniu, Ms. Xin has held various key roles such as Vice
President of investor relations, strategic investments and international media. Prior to joining Tuniu, Ms. Xin worked in equity research at China
Renaissance, a leading financial institution in China. Prior to joining China Renaissance, Ms. Xin worked at E-Commerce China Dangdang Inc., a
leading business-to-consumer e-commerce company in China, and at New Oriental Education and Technology Group Inc. (NYSE: EDU), the
largest provider of private educational services in China. Ms. Xin received bachelor’s degrees in economics and law from Nankai University.
Mr. Shihong Chen has served as our chief technology officer since January 2018. Mr. Chen is currently in charge of our research and
development, website and mobile, and accommodation reservation. Mr. Chen joined us in 2011 and was previously the head of the transportation
business unit. Prior to joining us, Mr. Chen was an engineering manager at Trend Micro, a leading provider in enterprise data and cyber security.
Mr. Chen received a bachelor's degree in mechanical engineering from Southeast University in China in 2005.
Mr. Wei Zhang has served as our executive vice president since May 2017. Mr. Zhang joined usin May 2015 as a senior vice president.
Prior to joining us, Mr. Zhang worked in Jiangsu Hiteker High-tech Co., Ltd. from 2000 to 2015 in various roles such as vice president and
executive president. Mr. Zhang received a master’s degree of business administration from a joint program between Renmin University of China
and University of Wales in 2013.
89
B.
Compensation
For the fiscal year ended December 31, 2018, we paid an aggregate of approximately RMB5.6 million (US$0.8 million) in cash to our
executive officers and RMB0.8 million (US$0.1 million) to our non-executive directors and officers. For share incentive grants to our directors and
executive officers and the vesting conditions of such share incentive grants, see “—Share Incentive Plans.”
Share Incentive Plans
2008 Incentive Compensation Plan
We adopted an incentive compensation plan, or the 2008 Plan, in 2008. The purposes of the 2008 Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide additional incentive to employees and consultants, and to promote the
success of our business by offering these individuals an opportunity to acquire a proprietary interest in our company. In 2012, we increased the
maximum aggregate number of shares which may be issued under the 2008 Plan from 11,500,000 to 18,375,140. As of February 28, 2019, options
to purchase 3,881,334 ordinary shares were outstanding under the 2008 Plan. The 2008 Plan terminated automatically in 2018.
The following paragraphs summarize the terms of the 2008 Plan.
Types of Awards. The 2008 Plan permits the awards of options and restricted shares.
Plan Administration. Our board of directors or a committee appointed by our board will administer the 2008 Plan. The committee or the
full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each
participant, and the terms and conditions of each award grant, among other things. Our board of directors may authorize one or more officers of us
to grant awards under the 2008 Plan, subject to parameters specified by the board of directors.
Award Agreement. Awards granted under the 2008 Plan are evidenced by an award agreement that sets forth terms, conditions and
limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service
terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award, among other things. Pursuant to the
form award agreement under the 2008 Plan, 1/4 of the ordinary shares underlying the option shall vest on the first anniversary of the date of grant,
and 1/48 of the remaining ordinary shares underlying the option shall vest on a monthly basis in the following three years. However, the option may
be exercised, to the extent vested, only (a) in connection with or after certain triggering events if the option is assumed by a company whose shares
are listed on a securities exchange, or (b) unless otherwise allowed by the plan administrator in its sole discretion, if the option holder obtains all the
necessary governmental approvals and consents required for the issuance of such shares.
Eligibility. We may grant awards to our employees and consultants of our company. However, we may grant options that are intended to
qualify as incentive options only to our employees.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The
vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the
maximum exercisable term is the tenth anniversary after the date of a grant.
90
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. The 2008 Plan terminated automatically in 2018.
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. In 2016, we
increased the maximum aggregate number of shares which may be issued under the 2014 Plan from 5,500,000 ordinary shares to 7,942,675 ordinary
shares. As of February 28, 2019, there were options to purchase 20,892,957 ordinary shares and 208,176 restricted shares outstanding under the
2014 Plan.
The following paragraphs summarize the terms of the 2014 Plan.
Types of Awards. The 2014 Plan permits the awards of options, restricted shares and restricted share units.
Plan Administration. Our board of directors or a committee designated by our board administers the 2014 Plan. The committee or the full
board of directors, as applicable, determines the participants to receive awards, the type and number of awards to be granted to each participant, and
the terms and conditions of each award grant.
Award Agreement. Awards granted under the 2014 Plan are evidenced by an award agreement that sets forth terms, conditions and
limitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service
terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grant options that are
intended to qualify as incentive share options only to our employees and employees of our parent companies and subsidiaries.
Acceleration of Awards upon Change in Control. If a change in control of our company occurs, the plan administrator may, in its sole
discretion, provide for (i) all awards outstanding to terminate at a specific time in the future and give each participant the right to exercise the vested
portion of such awards during a specific period of time, or (ii) the purchase of any award for an amount of cash equal to the amount that could have
been attained upon the exercise of such award, or (iii) the replacement of such award with other rights or property selected by the plan administrator
in its sole discretion, or (iv) payment of award in cash based on the value of ordinary shares on the date of the change-in-control transaction plus
reasonable interest.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. The
vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, the
maximum exercisable term is the tenth anniversary after the date of a grant.
Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent and
distribution, except as otherwise provided by the plan administrator.
Termination of the 2014 Plan. Unless terminated earlier, the 2014 Plan will terminate automatically in 2024. Our board of directors has
the authority to amend or terminate the plan subject to shareholder approval or home country practice.
91
The following table summarizes, as of February 28, 2019, the outstanding options and restricted shares granted to our directors and executive
officers under the 2008 Plan and 2014 Plan.
Ordinary
Shares
Underlying
Options
Awarded/
Restricted
Shares
630,814
1,100,000
1,269,995
900,000
760,000
1,981,000
1,420,000
17,256
3
37,716
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*†
*†
12,410,083
Name
Dunde Yu
Maria Yi Xin
Shihong Chen
Wei Zhang
Jack Xu
Onward Choi
Directors and officers as a
group
Exercise Price
(US$/
Share)
(RMB/
Share)(3)
0.688
1.554
0.001
20.627
21.245
21.245
18.447
0.001
11.482
0.023
13.751
0.001
0.001
0.001
18.447
0.001
11.482
0.023
1.554
7.804
12.307
0.001
20.627
0.001
21.245
0.001
21.245
18.447
0.001
11.482
0.023
21.245
0.001
18.447
11.482
0.023
Date of Grant
November 5, 2009
March 11, 2011
August 1, 2013
June 13, 2014
March 6, 2015
August 20, 2015
December 2, 2016
January 1, 2017
May 8, 2018
January 30, 2019
Novermber 30,
2013
August 15,2014
March 6, 2015
August 20, 2015
December 2, 2016
January 1, 2017
May 8, 2018
January 30, 2019
July 6, 2011
March 19, 2012
August 15,2013
August 15 2014
August 15 2014
March 6, 2015
March 6, 2015
August 20, 2015
August 20, 2015
December 2, 2016
January 1, 2017
May 8, 2018
January 30, 2019
August 20, 2015
August 20, 2015
December 2, 2016
May 8, 2018
January 30, 2019
May 9, 2018
May 9, 2018
Vesting
Schedule
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
1 years(2)
4 years(1)
1 years(2)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
1 years(2)
4 years(1)
1 years(2)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
1 years(2)
4 years(1)
1 years(2)
4 years(1)
4 years(1)
4 years(1)
4 years(1)
1 years(2)
4 years(1)
4 years(1)
Date of Expiration
November 4, 2019
March 10, 2017
July 31, 2019
June 12, 2024
March 5, 2025
August 19, 2025
December 1, 2026
December 31, 2026
May 7, 2028
January 29, 2029
Novermber 29,
2019
August 14, 2024
March 5, 2025
August 19, 2025
December 1, 2026
December 31, 2026
May 7, 2028
January 29, 2029
July 5, 2021
March 18, 2022
August 14, 2019
August 14, 2024
August 14, 2024
March 5, 2025
March 5, 2025
August 19, 2025
August 19, 2025
December 1, 2026
December 31, 2026
May 7, 2028
January 29, 2029
August 19, 2025
August 19, 2025
December 1, 2026
May 7, 2028
January 29, 2029
May 8, 2028
May 8, 2028
—
—
—
—
0.100
0.226
0.0001
3.000
3.090
3.090
2.683
0.0001
1.670
0.0033
2.000
0.0001
0.0001
0.0001
2.683
0.0001
1.670
0.0033
0.226
1.135
1.790
0.0001
3.000
0.0001
3.090
0.0001
3.090
2.683
0.0001
1.670
0.0033
3.090
0.0001
2.683
1.670
0.0033
N/A
N/A
—
*
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.
92
(2) Pursuant to the relevant award agreement, 1/12 of the ordinary shares underlying the option shall vest on a monthly basis. However, the option
may be exercised, to the extent vested, only (a) in connection with or after certain triggering events if the option is assumed by a company
whose shares are listed on a securities exchange, or (b) unless otherwise allowed by the plan administrator in its sole discretion, if the option
holder obtains all the necessary governmental approvals and consents required for the issuance of such shares.
(3) The prices in Renminbi were translated using the rate of US$1.00 = RMB6.8755, the exchange rate in effect as of December 31, 2018, solely
for the convenience of the readers.
C.
Board Practices
Board of Directors
Our board of directors currently consists of ten 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)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(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;
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;
93
(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. Shengli Hu and Mr. Jack Xu, and is chaired by
Mr. Choi. Each of Mr. Choi, Mr. Hu 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)
(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;
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 (i) a majority of the votes cast at a shareholder meeting (in person or by proxy) that
is duly constituted and meets the quorum requirement; or (ii) approval by unanimous written shareholder resolutions. 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, 2018, see “—A. Directors and Senior
Management.”
94
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 8,277, 6,841, and 7,355 employees as of December 31, 2016, 2017 and 2018, respectively. The following table sets forth
the numbers of our employees, categorized by function, as of December 31, 2018:
Function
Management and administration
Customer service center
Sales and marketing
Research and product development
Offline retail stores and local tour operators
Total
Number of
Employees
753
1,911
688
1,663
2,340
7,355
We enter into standard employment agreements with all our employees. We also enter into confidentiality agreements with certain directors
and executive officers that impose confidentiality obligations until the relevant information becomes public or is no longer considered confidential
by us. In addition to salaries and benefits, we provide stock-based compensation and performance-based bonuses for our employees and
commission-based compensation for our sales personnel.
As required by regulations in China, we participate in various employee social security plans that are organized by municipal and
provincial governments, including pension insurance, medical insurance, unemployment insurance, maternity insurance, job-related injury insurance
and a housing provident fund. We are required by PRC laws to make contributions to employee social security plans at specified percentages of the
salaries, bonuses and certain allowances of our employees.
Our success depends on our ability to attract, retain and motivate qualified personnel. We believe that we maintain a good working
relationship with our employees, and we have not experienced any significant labor disputes.
E.
Share Ownership
The following table sets forth information with respect to the beneficial ownership of our shares as of February 28, 2019 by:
(cid:120)
(cid:120)
each of our current directors and executive officers; and
each person known to us to own beneficially more than 5% of our shares.
See “—B. Compensation—Share Incentive Plans” for more details on options and restricted shares granted to our directors and executive
officers.
The calculations in the table below are based on (i) 369,075,337 ordinary shares outstanding as of February 28, 2019, including 17,373,500
Class B ordinary shares outstanding and 351,701,837 Class A ordinary shares outstanding (excluding 20,256,207 Class A ordinary shares,
represented by 6,752,069 ADSs, repurchased and reserved for the future exercise of options or the vesting of other awards under the 2008 Plan and
the 2014 Plan).
95
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)
Tie Li(2)
Jie Zhu(3)
Shengli Hu(4)
Cindy Chen(5)
Frank Lin(6)
Tao Yang (7)
Haifeng Yan(8)
Onward Choi(9)
Jack Xu(10)
Maria Yi Xin
Wei Zhang
Shihong Chen
All directors and executive officers as a group
Principal Shareholders:
BHR Winwood Investment Management Limited(11)
Affiliates of JD.com, Inc.(12)
DCM V, L.P. and Affiliates(13)
Unicorn Riches Limited(14)
Dragon Rabbit Capital Limited(15)
Fullshare Holdings Limited (16)
Temasek Holdings (Private) Limited (17)
11,432,630
100,786,465
100,786,465
78,061,780
27,436,780
31,829,512
12,481,034
—
**
**
**
**
**
263,069,282
100,786,465
78,061,780
31,829,512
27,436,780
4,104,137
18,303,650
24,583,333
10,423,503
—
—
—
—
—
—
—
—
—
—
—
—
10,423,503
—
—
—
—
10,423,503
6,949,997
—
21,856,133
100,786,465
100,786,465
78,061,780
27,436,780
31,829,512
12,481,034
—
**
**
**
**
**
273,492,785
100,786,465
78,061,780
31,829,512
27,436,780
14,527,640
25,253,647
24,583,333
5.8
27.3
27.3
21.2
7.4
8.6
3.4
—
**
**
**
**
**
72.5
27.3
21.2
8.6
7.4
3.9
6.8
6.7
21.7
19.2
19.2
14.9
5.2
6.1
2.4
—
**
**
**
**
**
68.8
19.2
14.9
6.1
5.2
20.6
16.7
4.7
*
Except for Tie Li, Jie Zhu, Shengli Hu, Cindy Chen, Frank Lin, Tao Yang, Haifeng Yan, 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 February 28, 2019, which is 369,075,337
ordinary shares outstanding, including 17,373,500 Class B ordinary shares outstanding and 351,701,837 Class A ordinary shares outstanding
(excluding the 20,256,207 Class A ordinary shares, represented by 6,752,069 ADSs, repurchased 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 February 28, 2019.
†† 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 February 28, 2019, with respect to the total voting power based on all the
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.
96
(1) Represents (i) 7,328,493 Class A ordinary shares underlying the options or restricted shares that have become fully vested as of February 28,
2019 or will become fully vested within 60 days after February 28, 2019, 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 100,786,465 Class A ordinary shares held by BHR Winwood Investment Management Limited and Hong Kong Praise Tourism
Investment 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.
(3) Represents 100,786,465 Class A ordinary shares held by BHR Winwood Investment Management Limited and Hong Kong Praise Tourism
Investment 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.
(4) 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. Hu is 15F, Building C, No. 18 Kechuang 11
Street, BDA, Beijing, PRC
(5) 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.
(6) Represents (i) 19,952,556 Class A ordinary shares held by DCM V, L.P., (ii) 486,864 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.
(7) Represents 12,481,034 Class A ordinary shares held by Ctrip Investment Holding Ltd. The business address of Mr. Yang is Building 16, Sky
SOHO, No. 968 Jinzhong Road, Shanghai, PRC.
(8) The business address of Mr. Yan is No. 39, High-tech 6th Road, Binhai High-tech Industrial Park, Binhai High-Tech District, Tianjin, PRC.
(9) 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.
(10) The business address of Mr. Xu is 3000 Sand Hill Road, Building 4, Suite 100; Menlo Park, CA 94025.
(11) Represents (i) 90,909,091 class A ordinary shares held by BHR Winwood Investment Management Limited and (ii) 9,877,374 class A ordinary
shares held by Hong Kong Praise Tourism Investment Limited (HK Praise Tourism) . 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.
HK Praise Tourism is a company organized under the laws of Hong Kong, and is a nominee of Beijing Capital Airlines Co. Limited, a
controlled subsidiary of HNA Tourism. The business address of HK Praise Tourism is Unit 402, 4th Floor, Fairmont House No. 8 Cotton Tree
Drive, Admiralty, Hong Kong.
(12) 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.”
97
(13) Represents (i) 19,952,556 Class A ordinary shares held by DCM V, L.P., (ii) 486,864 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.
(14) 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.
(15) 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.
(16) Represents (i) 8,965,580 Class A ordinary shares (including 4,104,137 Class A ordinary shares and 4,861,443 Class A ordinary shares
represented by 1,620,481 ADSs) and 6,949,997 Class B ordinary shares held by Verne Capital Limited, and (ii) 2,730,000 Class A ordinary
shares represented by 910,000 ADSs held by Pride Success Capital Limited, and (iii) 2,346,066 Class A ordinary shares represented by 782,022
ADSs held by Wealth Add Limited, and (iv)4,262,004 Class A ordinary shares represented by 1,420,668 ADSs held by Five Seasons XV
Limited. Verne Capital Limited, Pride Success Capital Limited and Wealth Add Limited are wholly owned subsidiaries of Five Seasons XV
Limited. Five Seasons XV Limited is a wholly owned subsidiary of Fullshare Value Fund II L.P.. Fullshare Investment Management III
Limited is the general partner of Fullshare Value Fund II L.P., and is wholly owned by Five Seasons XII Limited, which is a wholly owned
subsidiary of Fullshare Holdings Limited. Accordingly, Fullshare Value Fund II L.P., Fullshare Investment Management III Limited, Five
Seasons XII Limited and Fullshare Holdings Limited may be deemed to beneficially own the securities held by Verne Capital Limited, Pride
Success Capital Limited, Wealth Add Limited and Five Seasons XV Limited. The business address of Fullshare Holdings Limited is Unit 10-
12, Level 43, Champion Tower, Three Garden Road, Central, Hong Kong.
(17) Represents 24,583,333 Class A ordinary shares (directly or in the form of ADSs) owned by Esta Investments Pte. Ltd.. Esta Investments Pte.
Ltd. is wholly-owned by Tembusu Capital Pte. Ltd., which in turn is wholly-owned by Temasek Holdings (Private) Limited. The business
address of Temasek Holdings (Private) Limited is 60B Orchard Road, #06-18 Tower 2, The Atrium@Orchard Singapore 238891.
To our knowledge, as of February 28, 2019, 110,766,420 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 30.01% of our total outstanding shares. This
includes 86,577,000 ordinary shares 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.”
98
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 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 to Ctrip were immaterial. Revenues from Ctrip consist of commission fees for the booking of hotel rooms and air tickets
through our online platform, amounting to RMB54.8 million, RMB61.5 million and RMB161.7 million (US$23.5 million) for the years ended
December 31, 2016, 2017 and 2018, respectively. As of December 31, 2017 and 2018, amounts due from Ctrip amounted to RMB16.1 million and
RMB11.1 million (US$1.6 million), respectively, and amounts due to Ctrip amounted to RMB87.0 million and RMB73.2 million (US$10.7
million), 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 in cash and RMB660.2 million representing the fair value of 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. As of December 31, 2017 and 2018, amounts due from JD.com, Inc. amounted to RMB10.9 million
and RMB50.3 million (US$7.3 million), respectively, and amounts due to JD.com, Inc. amounted to nil and RMB2.4 million (US$0.3 million),
respectively.
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 until June 30, 2018. 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. We have purchased RMB250.5 million, RMB394.7 million and RMB588.9 million (US$85.7 million) air tickets from HNA Tourism for
the years ended December 31, 2016, 2017 and 2018, respectively. In 2018, we also provided account receivables factoring service to an affiliate of
HNA Tourism amounting to RMB500 million (US$72.7 million) with a repayment term of 12 months. As of December 31, 2017 and 2018, amounts
due from HNA Tourism amounted to RMB143.1 million and RMB635.1 million (US$92.4 million), respectively
Relationship with Black Fish Group Limited
Haifeng Yan, our director, founded Black Fish Group Limited (“Black Fish”). In 2017, we disposed several subsidiaries to Black Fish with
nominal consideration. As of the disposal date, these subsidiaries were in deficit positions and disposal gain was insignificant in our consolidated
statement of comprehensive income.
In 2017, Black Fish entered into cooperation agreements with us for provision of services in relation to our online lending services. The
amount of service fees charged by Black Fish was RMB155.9 million for the year ended December 31, 2017. Black Fish also purchased loan
receivable assets related to the lending business from us at the consideration of RMB140.0 million as we terminated these cooperation agreements
and stopped granting loans to individuals in 2017. As of December 31, 2017 and 2018, amounts due from Black Fish amounted to RMB1.2 million
and nil, respectively.
Relationship with Fullshare Holdings Limited
Fullshare Holdings Limited (“Fullshare”) is our principal shareholder. During the year ended December 31, 2018, Fullshare made several
prepayments to us for travelling products, which was RMB1.6 million (US$0.2 million) in 2018. As of December 31, 2018, amounts due to
Fullshare amounted to RMB1.6 million (US$0.2 million).
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.
99
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.
Item 9.
The Offer and Listing
A.
Offering and Listing Details
See “—C. Markets.”
100
B.
Plan of Distribution
Not applicable.
C.
Markets
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
(2018 Revision) of the Cayman Islands, which we refer to as the Companies Law below. The following are summaries of material provisions of our
fifth amended and restated memorandum and articles of association that became effective immediately prior to the completion of our initial public
offering in May 2014, insofar as they relate to the material terms of our ordinary shares.
Registered Office and Objects
Our registered office in the Cayman Islands is located at International Corporation Services Ltd., P.O. Box 472, 2nd Floor, Harbour Place,
103 South Church Street, George Town, Grand Cayman KY1-1106, Cayman Islands, or at such other place as our board of directors may from time
to time decide. The objects for which our company is established are unrestricted and we have full power and authority to carry out any object not
prohibited by the Companies Law, as amended from time to time, or any other law of the Cayman Islands.
101
Board of Directors
See “Item 6.C. Directors, Senior Management and Employees—Board Practices.”
Ordinary Shares
General. Our authorized share capital is US$100,000 divided into 1,000,000,000 shares, with a par value of US$0.0001 each, which will be
divided into 780,000,000 Class A ordinary shares with a par value of US$0.0001 each, 120,000,000 Class B ordinary shares with a par value of
US$0.0001 each, and 100,000,000 shares of a par value of US$0.0001 each of such class or classes (however designated) as our board of directors
may determine. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. All of
our outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our
shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. Our current
articles of association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from
profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of share premium account or any
other fund or account which can be authorized for this purpose in accordance with the Companies Law. Holders of Class A ordinary shares and
Class B ordinary shares are entitled to the same amount of dividends, if declared.
Voting Rights. In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class
B ordinary share is entitled to ten votes, voting together as one class. Voting at any meeting of shareholders is by show of hands unless a poll is
demanded. A poll may be demanded by the chairman of such meeting or any shareholder present in person or by proxy. Each holder of our ordinary
shares are entitled to vote such ordinary shares as are registered in his or her name on our register of members.
A quorum required for a meeting of shareholders consists of at least two shareholders who hold at least one third in nominal value of our
share capital in issue at the meeting present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized
representative. Shareholders’ meetings may be held annually. Each general meeting, other than an annual general meeting, shall be an extraordinary
general meeting. Extraordinary general meetings may be called by a majority of our board of directors or our chairman or upon a requisition of
shareholders holding at the date of deposit of the requisition not less than one-third of the aggregate voting power of our company. Advance notice
of at least 14 calendar days is required for the convening of our annual general meeting and other general meetings. All holders of ordinary shares
are permitted to attend general and extraordinary meetings.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes
attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast
attaching to the outstanding ordinary shares at a meeting. A special resolution is required for important matters such as a change of name or making
changes to our current memorandum and articles of association.
Conversion. Each Class B ordinary share can be convertible into one Class A ordinary share at any time by the holder. Class A ordinary
shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a holder to any
person or entity which is not an affiliate of such holder, such Class B ordinary shares will be automatically and immediately converted into the
equivalent number of Class A ordinary shares.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her
ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
102
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.
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.”
103
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 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;
(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)
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
104
(cid:120)
the date on which any person ceased to be a member.
Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register
of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members is
deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members.
If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay
in entering on the register the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of
our company or our company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court
may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Differences in Corporate Law
The Companies Law is modeled after that of English law but does not follow many recent English law statutory enactments. In addition,
the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the
significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the State
of Delaware.
Mergers and Similar Arrangements. A merger of two or more constituent companies under Cayman Islands law requires a plan of merger
or consolidation to be approved by the directors of each constituent company and authorization by (a) a special resolution of the shareholders and
(b) such other authorization, if any, as may be specified in such constituent company’s articles of association.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of
shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that
member agrees otherwise. For this purpose a subsidiary is a company of which at least ninety percent (90%) of the issued shares entitled to vote are
owned by the parent company.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived
by a court in the Cayman Islands.
Save in certain circumstances, a dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his
shares upon dissenting to a merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right
to seek relief on the grounds that the merger or consolidation is void or unlawful.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement
is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition
represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by
proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by
the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to
be approved, the court can be expected to approve the arrangement if it determines that:
(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
105
(cid:120)
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.
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.
106
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company
and therefore it is considered that he or she owes the following duties to the company—a duty to act bona fide in the best interests of the company, a
duty not to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or
herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a
Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the
performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience.
However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these
authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of
shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our current articles of association
provide that shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who
would have been entitled to vote on such matter at a general meeting without a meeting being held.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual
meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board
of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
Cayman Islands law does not provide shareholders any right to put proposals before a meeting or requisition a general meeting. However,
these rights may be provided in articles of association. Our current articles of association allow our shareholders holding not less than one-third of
all voting power of our share capital in issue to requisition a shareholder’s meeting. Other than this right to requisition a shareholders’ meeting, our
current articles of association do not provide our shareholders other right to put proposal before a meeting. As an exempted Cayman Islands
company, we are not obliged by law to call shareholders’ annual general meetings.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the
corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority
shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single
director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative
voting under the laws of the Cayman Islands but our current articles of association do not provide for cumulative voting. As a result, our
shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed
only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.
Under our current articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to
Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of
incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that
such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or
more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a
two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the
date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the
transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to
negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware
business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant
shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of
constituting a fraud on the minority shareholders.
107
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.”
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.
108
People’s Republic of China Taxation
Under the EIT Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC
resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide
income as well as tax reporting obligations. Under the Implementation Rules, a “de facto management body” is defined as a body that has material
and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an
enterprise. In addition, SAT Circular 82 issued in April 2009 and amended in 2013 and 2017, specifies that certain offshore-incorporated enterprises
controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions are met: (a)
senior management personnel and core management departments in charge of the daily operations of the enterprises have their presence mainly in
the PRC; (b) their financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) major
assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and shareholders’ meetings are located or kept
in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC.
Further to SAT Circular 82, the SAT issued SAT Bulletin 45, which took effect in September 2011 and was amended in 2015 and 2016,
respectively, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration
details of determination on PRC resident enterprise status and administration on post-determination matters. If the PRC tax authorities determine
that Tuniu Corporation is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could
follow. For example, Tuniu Corporation may be subject to enterprise income tax at a rate of 25% with respect to its worldwide taxable income.
Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by
our non-PRC enterprise shareholders from transferring our shares or ADSs and potentially a 20% of withholding tax would be imposed on
dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual shareholders from
transferring our shares or ADSs.
It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of
income tax treaties or agreements entered into between China and other countries or areas. See “Item 3.D. Key Information—Risk Factors—Risks
Related to Doing Business in China—Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC
enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and
would have a material adverse effect on our results of operations and the value of your investment.”
The SAT issued SAT Circular 59 together with the Ministry of Finance in April 2009 and SAT Circular 698 in December 2009 which has
been amended in 2013 and 2015. Both SAT Circular 59 and SAT Circular 698 became effective retroactively as of January 1, 2008. By
promulgating and implementing these two circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of
equity interests in a PRC resident enterprise by a non-PRC resident enterprise. The SAT further released its Bulletin on Several Issues Concerning
Enterprise Income Taxation on Income Arising from the Indirect Transfer of Property by Non-resident Enterprises (“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. 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. In 2017, the SAT released its Bulletin on Matters concerning Withholding of Income Tax of Non-resident Enterprises at Source
(“Bulletin 37”) which became effective on December 1, 2017. Bulletin 37 abolished SAT Circular 698, and updated the calculation method for the
taxable income for the share transfer as well as stipulated the withholding obligation of the withholding agent. There is uncertainty as to the
interpretation and application of Bulletin 7 and Bulletin 37. We and our non-PRC resident investors may be at risk of being taxed under Bulletin 7
and Bulletin 37 and we may be required to expend valuable resources to comply with Bulletin 7 and Bulletin 37 or to establish that we should not be
taxed under Bulletin 7 and Bulletin 37. 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.”
109
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 stock (by vote or value), investors that hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive
sale or other integrated transaction), investors required to accelerate the recognition of any item of gross income with respect to our ADSs or
ordinary shares as a result of such income being recognized on an applicable financial statement or investors that have a functional currency other
than the U.S. dollar). In addition, this discussion does not address United States federal estate, gift, Medicare, and alternative minimum tax
considerations, or state, local, and non-United States tax considerations. Each U.S. Holder is urged to consult its tax advisor regarding the United
States federal, state, local, and non-United States tax considerations of an investment in our ADSs or ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for United States federal
income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for
United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of
Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or
(iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States
person under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ADSs or
ordinary shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership.
Partnerships and partners of a partnership holding our ADSs or ordinary shares are urged to consult their tax advisors regarding an investment in our
ADSs or ordinary shares.
It is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner, for United States federal income tax purposes,
of the underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this
manner. Accordingly, deposits or withdrawals of our ordinary shares for our ADSs will not be subject to United States federal income tax.
Passive Foreign Investment Company Considerations
A non-United States corporation, such as our company, will be classified as a “passive foreign investment company,” or PFIC, for United
States federal income tax purposes, if, in the case of any particular taxable year, either (i) 75% or more of its gross income for such year consists of
certain types of “passive” income or (ii) 50% or more of the value of its assets (as determined on the basis of a quarterly average) during such year
produce or are held for the production of passive income (the “asset test”). For this purpose, cash is categorized as a passive asset and the company’s
goodwill and unbooked intangibles associated with active business activities may generally be classified as active assets. Passive income generally
includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning our
proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly,
25% or more (by value) of the stock.
110
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.
No assurance can be given with respect to our PFIC status for the taxable year ended December 31, 2018 or any future taxable year. The
determination of whether we are or will become a PFIC is uncertain. Because it is a factual determination made annually that will depend upon the
composition of our income and assets. 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 increase relative to our revenue from
activities that produce non-passive income, or where we determine not to deploy cash for active purposes, our risk of becoming classified as a PFIC
will 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 being or becoming a PFIC for the current or subsequent taxable years.
Furthermore, 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.
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 holds our ADSs or ordinary shares.
The discussion below under “Dividends” and “Sale or Other Disposition of ADSs or Ordinary Shares” is written on the basis that we will
not be classified as a PFIC for United States federal income tax purposes. The United States federal income tax rules that apply if we are classified
as a PFIC for the current taxable year or any subsequent taxable year are discussed below under “Passive Foreign Investment Company Rules.”
Dividends
Subject to the PFIC rules described below, any cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or
ordinary shares out of our current or accumulated earnings and profits, as determined under United States federal income tax principles, will
generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder,
in the case of ordinary shares, or by the depositary bank, in the case of ADSs. Because we do not intend to determine our earnings and profits on the
basis of United States federal income tax principles, a U.S. Holder should expect that any distribution paid on our ADSs or ordinary shares will be
treated as a “dividend” for United States federal income tax purposes. A non-corporate recipient of dividend income will generally be subject to tax
on dividend income from a “qualified foreign corporation” at a lower applicable capital gains rate rather than the marginal tax rates generally
applicable to ordinary income provided that certain holding period and other requirements are met.
111
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. Furthermore, as mentioned above, no
assurance can be given with respect to our PFIC status for the taxable year ended December 31, 2018 or any future taxable year. U.S. Holders are
urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends with respect to our ADSs or ordinary shares in their
particular circumstances. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends-received deduction allowed to
corporations.
For United States foreign tax credit purposes, dividends paid on our ADSs or ordinary shares will be treated as income from foreign
sources and will generally constitute passive category income. In the event that we are deemed to be a PRC resident enterprise under the EIT Law, a
U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on our ADSs or ordinary shares. A U.S. Holder may be eligible,
subject to a number of complex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received
on our ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a
deduction for United States federal income tax purposes in respect of such withholding, but only for a year in which such U.S. Holder elects to do so
for all creditable foreign income taxes. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax advisors
regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Other Disposition of ADSs or Ordinary Shares
Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize capital gain or loss, if any, upon the sale or other
disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the U.S. Holder’s
adjusted tax basis in such ADSs or ordinary shares. Any capital gain or loss will be long-term gain or loss if the ADSs or ordinary shares have been
held for more than one year and will generally be United States-source gain or loss for United States foreign tax credit purposes. In the event that we
are treated as a PRC resident enterprise under the EIT Law, and gain from the disposition of the ADSs or ordinary shares is subject to tax in the
PRC, such gain may be treated as PRC-source gain for foreign tax credit purposes under the United States-PRC income tax treaty. The deductibility
of a capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if a foreign tax is
imposed on a disposition of our ADSs or ordinary shares, including the availability of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company Rules
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, unless the U.S. Holder
makes a mark-to-market election (as described below) with respect to the ADSs, the U.S. Holder will, except as discussed below, be subject to
special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess distribution that we make to the U.S.
Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125% of the average annual
distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (ii) any
gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:
(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;
112
(cid:120)
(cid:120)
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.
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.
113
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.
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.
114
Foreign Exchange Risk
All of our revenues and substantially all of our expenses are denominated in Renminbi. We do not believe that we currently have any
significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although in general
our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between
the U.S. dollar and the Renminbi because the value of our business is effectively denominated in Renminbi, while our ADSs will be traded in U.S.
dollars.
The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions
and by China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its decades-old policy of pegging the
value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years.
Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a
narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. In particular, the
Renminbi has been depreciating against the U.S. dollar since August 2015, and it is difficult to predict how market forces or PRC or U.S.
government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar
would have an adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S.
dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S.
dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us.
As of December 31, 2018, we had Renminbi-denominated cash and cash equivalents, restricted cash and short-term investments of
RMB1,690.2 million, and U.S. dollar-denominated cash, cash equivalents and short-term investments of US$245.8 million. Assuming we had
converted RMB1.0 million into U.S. dollars at the exchange rate of RMB6.8755 for US$1.00 as of December 31, 2018, our U.S. dollar cash balance
would have been US$145,444. If the Renminbi had depreciated by 10% against the U.S. dollar, our U.S. dollar cash balance would have been
US$132,222 instead. Assuming we had converted US$1.0 million into Renminbi at the exchange rate of RMB6.8755 for US$1.00 as of December
31, 2018, our Renminbi cash balance would have been RMB6.9 million. If the Renminbi had depreciated by 10% against the U.S. dollar, our
Renminbi cash balance would have been RMB7.6 million instead. We have not used any forward contracts or currency borrowings to hedge our
exposure to foreign currency exchange risk.
Inflation
Inflation in China has not materially affected our results of operations in recent years. According to the National Bureau of Statistics of
China, the year-over-year percent changes in the consumer price index for December 2016, 2017 and 2018 were increases of 2.1%, 1.8% and 1.9%,
respectively. Although we have not been materially affected by inflation in the past, we may be materially affected if China experiences higher rates
of inflation in the future.
Item 12.
Description of Securities Other than Equity Securities
A.
Debt Securities
Not applicable.
B.
Warrants and Rights
Not applicable.
C.
Other Securities
Not applicable.
115
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)
(cid:120)
(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);
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
116
(cid:120)
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 2018, we received a reimbursement of approximately US$0.2 million from the depositary net of US$0.07 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.
117
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
None.
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 of 8,580,000 ADSs, representing 25,740,000 Class A ordinary shares, which registration statement
was declared effective by the SEC on May 8, 2014. 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, 2018, 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 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, 2018, the end of the period covered by this annual report.
Based upon that evaluation, our management has concluded that, as of December 31, 2018, 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.
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.
118
Our management has excluded one online travel agency acquired in 2018, as described in Note 4 “Business Acquisition” to our
consolidated financial statements included in this Annual Report on Form 20-F, from our assessment of the effectiveness of the internal control over
financial reporting as of December 31, 2018. The total assets and total revenues of this excluded online travel agency constitute 0.5% and 0.2%,
respectively of our total assets and total net revenues, as of and for the year ended December 31, 2018.
Our management conducted an evaluation of the effectiveness of our company’s internal control over financial reporting as of December
31, 2018 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, 2018.
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, 2018, as stated in its report, which appears on page F-2 of this Form 20-F.
Changes in Internal Control over Financial Reporting
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)
All other fees(3)
2017
US$
US$
US$
1,573,258
44,793
—
2018
1,518,941
—
86,106
(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.
(2) “Audit-related fees” means the aggregate fees billed for professional services rendered by our principal external auditors associated with certain
financial due diligence projects.
(3) “All other fees” means the aggregate fees billed for professional services rendered by our principal external auditors associated with other
advisory services.
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 all other 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.
119
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On August 23, 2016, our board of directors authorized a share repurchase program under which we may repurchase up to US$150 million
worth of our ordinary shares or American depositary shares representing ordinary shares over the next 12 months. On January 12, 2018, our board
of directors authorized a share repurchase program under which we may repurchase up to US$100 million worth of our ordinary shares or American
depositary shares representing ordinary shares over the next 12 months. The share repurchase programs permitted us to purchase shares from time to
time on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible
means, depending on market conditions and in accordance with applicable rules and regulations. The repurchased shares were presented as “treasury
stock” in shareholder’s equity on our consolidated balance sheets. Treasury stock is accounted for under the cost method.
The following table sets forth a summary of our repurchase of our ADSs made in the year 2018 under the share repurchase programs
described in the paragraph above.
Total Number
of
ADSs
Purchased(1)
Average
Price
Paid Per
ADS(1)
Total Number
of ADSs
Purchased as
Part of Publicly
Announced
Plans
or Programs(2)
Approximate
Dollar Value of
ADSs that May
Yet Be
Purchased
Under Plans or
Programs
(US$)
439,225 US$
1,030,347 US$
1,037,310 US$
618,034 US$
180,821 US$
3,305,737 US$
6.60
6.27
6.98
7.61
4.92
6.71
439,225 US$
1,030,347 US$
1,037,310 US$
618,034 US$
180,821 US$
3,305,737 US$
97,102,540
90,642,422
83,399,845
78,694,501
77,804,291
77,804,291
Period
March 16, 2018 to March 29, 2018
April 2, 2018 to April 30, 2018
May 1, 2018 to May 31, 2018
June 1, 2018 to June 20, 2018
December 20, 2018 to December 28, 2018
Total
(1) Each ADS represents three Class A ordinary shares.
(2) On August 23, 2016, our board of directors authorized a share repurchase program under which we may repurchase up to US$150 million worth
of our ordinary shares or American depositary shares representing ordinary shares over the next 12 months. On January 12, 2018, our board of
directors authorized a share repurchase program under which we may repurchase up to US$100 million worth of our ordinary shares or
American depositary shares representing ordinary shares over the next 12 months.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
120
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 November 2015, 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.
121
PART III
Item 17.
Financial Statements
We have elected to provide financial statements pursuant to Item 18.
Item 18.
Financial Statements
The consolidated financial statements of Tuniu Corporation, its subsidiaries and its consolidated affiliated entities are included at the end of
this annual report.
122
Item 19.
Exhibits
Exhibit
Number
Description of Document
1.1 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).
2.1 Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3).
2.2 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).
2.3 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).
2.4 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).
4.1 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).
4.2 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).
4.3 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).
4.4 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).
4.5 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).
4.6 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).
4.7 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).
123
Exhibit
Number
Description of Document
4.8 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).
4.9 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).
4.10 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).
4.11 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).
4.12 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).
4.13 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).
4.14 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).
4.15 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).
4.16 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).
4.17 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).
4.18 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).
124
Exhibit
Number
Description of Document
4.19 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).
4.20 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).
4.21 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).
4.22 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).
4.23 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).
4.24 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).
8.1* List of Significant Subsidiaries.
11.1 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).
12.1* Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2* Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1** Certification by Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2** Certification by Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1* Consent of PricewaterhouseCoopers Zhong Tian LLP.
15.2* Consent of Travers Thorp Alberga.
15.3* Consent of Fangda Partners.
125
Exhibit
Number
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
126
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
Tuniu Corporation
By: /s/ Dunde Yu
Name: Dunde Yu
Title: Chairman and Chief Executive Officer
Date: April 4, 2019
127
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2018
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2016, 2017 and 2018
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2016, 2017 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2017 and 2018
Notes to the Consolidated Financial Statements
Financial Statement Schedule I - Condensed Financial Information of the Parent Company
F-2
F-4
F-6
F-7
F-9
F-11
F-52
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Tuniu Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Tuniu Corporation and its subsidiaries (the “Company”) as of December 31,
2018 and 2017, and the related consolidated statements of comprehensive loss, of changes in shareholders’ equity and of cash flows for each of the
three years in the period ended December 31, 2018, including the related notes and financial statement schedule listed in the accompanying index
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as
of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on
Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated
financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
F-2
As described in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15, management has excluded an
online travel agency acquired in 2018 from its assessment of internal control over financial reporting as of December 31, 2018 because it was
acquired by the Company in a purchase business combination during 2018. We have also excluded this online travel agency from our audit of
internal control over financial reporting. This online travel agency is a subsidiary whose total assets and total revenues excluded from management’s
assessment and our audit of internal control over financial reporting represent 0.5% and 0.2%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2018.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
April 4, 2019
We have served as the Company’s auditor since 2010, which includes periods before the Company became subject to SEC reporting requirements.
F-3
TUNIU CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 2017 and 2018
(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
Yield enhancement products and accrued interest
Total current assets
Non-current assets
Long-term investments
Property and equipment, net
Intangible assets, net
Land use right, net
Goodwill
Yield enhancement products over one year and accrued interest
Other non-current assets
Total non-current assets
Total assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
EQUITY
Current liabilities (including current liabilities of the Affiliated Entities without recourse
to the Company amounting to RMB2,453,662 and RMB2,691,090, as of December 31,
2017 and 2018, respectively):
Accounts and notes payable
Amounts due to related parties
Salary and welfare payable
Taxes payable
Advances from customers
Accrued expenses and other current liabilities
Amounts due to the individual investors of yield enhancement products and accrued
interests
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
2017
RMB
As of December 31,
2018
RMB
US$ (Note 2(d))
484,101
91,810
3,084,634
286,627
171,331
939,463
31,337
5,089,303
484,991
148,278
460,634
—
147,639
170,505
156,455
1,568,502
6,657,805
852,500
86,923
187,561
32,036
1,210,615
373,690
177,971
2,921,296
21,142
21,339
42,481
2,963,777
560,356
270,670
859,211
347,547
696,520
1,673,584
—
4,407,888
1,302,506
187,360
317,885
100,836
159,409
—
81,039
2,149,035
6,556,923
1,305,610
77,159
104,480
23,316
1,058,946
533,144
—
3,102,655
19,855
20,561
40,416
3,143,071
81,500
39,367
124,967
50,549
101,305
243,413
—
641,101
189,442
27,250
46,234
14,666
23,185
—
11,787
312,564
953,665
189,893
11,222
15,196
3,391
154,017
77,544
—
451,263
2,888
2,990
5,878
457,141
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TUNIU CORPORATION
CONSOLIDATED BALANCE SHEETS
As of December 31, 2017 and 2018
(All amounts in thousands, except for share and per share data, or otherwise noted)
Commitments and contingencies (Note 20)
Redeemable noncontrolling interests
Equity
Ordinary shares (US$0.0001 par value; 1,000,000,000 shares (including 780,000,000
Class A shares, 120,000,000 Class B shares and 100,000,000 shares to be designated
by the Board of Directors) authorized as of December 31, 2017 and 2018;
388,918,015 shares (including 371,544,515 Class A shares and 17,373,500 Class B
shares) and 389,331,544 shares (including 371,958,044 Class A shares and
17,373,500 Class B shares) issued and outstanding as of December 31, 2017 and
2018, respectively)
Less: Treasury stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total Tuniu Corporation shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities, redeemable noncontrolling interests and equity
2017
RMB
As of December 31,
2018
RMB
US$ (Note 2(d))
96,719
69,319
10,082
248
(185,419)
9,013,793
272,386
(5,505,897)
3,595,111
2,198
3,597,309
6,657,805
249
(304,535)
9,061,979
284,079
(5,691,409)
3,350,363
(5,830)
3,344,533
6,556,923
36
(44,293)
1,318,010
41,318
(827,781)
487,290
(848)
486,442
953,665
The accompanying notes are an integral part of these consolidated financial statements.
F-5
2018
RMB
US$ (Note 2(d))
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Years Ended December 31, 2016, 2017 and 2018
(All amounts in thousands, except for share and per share data, or otherwise noted)
For the Years Ended December 31,
Revenues
Packaged 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 and investment income, net
Foreign exchange losses, net
Other (loss)/income, net
Loss before income tax expense
Income tax benefit/(expense)
Net loss
Net loss attributable to noncontrolling interests
Net (loss)/income attributable to redeemable noncontrolling interests
Net loss attributable to Tuniu Corporation
Accretion on redeemable noncontrolling interests
Net loss attributable to ordinary shareholders
2016
RMB
10,147,148
401,100
10,548,248
(17,307)
10,530,941
(9,891,736)
639,205
(601,402)
(1,900,397)
(658,790)
22,323
(3,138,266)
(2,499,061)
87,305
(9,734)
(2,553)
(2,424,043)
1,711
(2,422,332)
(15,104)
(34)
(2,407,194)
(106)
(2,407,300)
2017
RMB
1,589,353
602,747
2,192,100
—
2,192,100
(1,024,206)
1,167,894
(541,126)
(894,148)
(637,795)
21,749
(2,051,320)
(883,426)
130,250
(2,394)
(121)
(755,691)
(15,625)
(771,316)
(4,934)
922
(767,304)
(5,725)
(773,029)
1,830,630
409,519
2,240,149
—
2,240,149
(1,065,022)
1,175,127
(315,222)
(778,126)
(487,372)
56,599
(1,524,121)
(348,994)
152,929
(11,729)
8,576
(199,218)
(153)
(199,371)
(14,037)
178
(185,512)
(2,422)
(187,934)
Net loss
Other comprehensive income/(loss)
Foreign currency translation adjustment, net of nil tax
Comprehensive loss
Comprehensive loss attributable to noncontrolling interests
Comprehensive (loss)/income attributable to redeemable
noncontrolling interests
Comprehensive loss attributable to Tuniu Corporation
(2,422,332)
(771,316)
(199,371)
233,900
(2,188,432)
(15,104)
(34)
(2,173,294)
(128,539)
(899,855)
(4,934)
922
(895,843)
11,693
(187,678)
(14,037)
178
(173,819)
266,254
59,562
325,816
—
325,816
(154,901)
170,915
(45,847)
(113,174)
(70,885)
8,232
(221,674)
(50,759)
22,243
(1,706)
1,247
(28,975)
(22)
(28,997)
(2,042)
26
(26,981)
(352)
(27,333)
(28,997)
1,701
(27,296)
(2,042)
26
(25,280)
Loss per share
Basic and diluted
Weighted average number of ordinary shares used in computing basic
and diluted loss per share
(6.45)
(2.04)
(0.50)
(0.07)
373,347,855
378,230,039
377,744,381
377,744,381
The accompanying notes are an integral part of these consolidated financial statements.
F-6
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2016, 2017 and 2018
(All amounts in thousands, except for share and per share data, or otherwise noted)
Ordinary shares
Treasury Stock
Shares
Amount
RMB
Shares
Amount
RMB
Additional
paid-in
capital
RMB
Accumulated
other
comprehensive Accumulated
income/(loss)
RMB
deficit
RMB
Total Tuniu
Corporation
Shareholders’ Noncontrolling
equity
RMB
interests
RMB
Total Equity
RMB
286,970,892
181
—
— 5,482,637
167,025
(2,331,399)
3,318,444
16,303
3,334,747
90,909,091
—
1,590,774
—
—
—
—
—
60
—
1
—
—
—
—
—
—
— 3,275,775
(985,299)
(19,708)
—
—
—
—
—
—
—
—
—
—
—
—
—
5,266
92,419
—
—
(106)
—
—
—
—
—
233,900
—
—
—
—
—
—
—
—
—
3,275,835
(19,708)
5,267
92,419
233,900
—
—
—
—
—
3,275,835
(19,708)
5,267
92,419
233,900
—
(401)
(401)
—
(2,407,194)
(106)
(2,407,194)
—
(15,104)
(106)
(2,422,298)
379,470,757
242
(985,299)
(19,708)
8,855,991
400,925
(4,738,593)
4,498,857
—
— (8,986,053)
(165,711)
—
—
—
(165,711)
9,447,258
—
—
—
—
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
67,593
98,675
67,587
98,675
(2,735)
—
—
(128,539)
—
—
—
—
(2,735)
6,334
3,599
(128,539)
—
(128,539)
(5,725)
—
—
—
—
(767,304)
(5,725)
(767,304)
—
(4,934)
(5,725)
(772,238)
388,918,015
248
(9,971,352)
(185,419)
9,013,793
272,386
(5,505,897)
3,595,111
2,198
3,597,309
The accompanying notes are an integral part of these consolidated financial statements.
F-7
798
—
—
—
4,499,655
(165,711)
67,593
98,675
Balance as of
January 1,
2016
Issuance of
ordinary shares
upon the
private
placement, net
of issuance
costs of
RMB3,414
Repurchase of
ordinary shares
Issuance of
ordinary shares
pursuant to
share incentive
plan
Share-based
compensation
expenses
Foreign currency
translation
adjustments
Remeasurement
of prior year
acquisitions
Accretion on
redeemable
noncontrolling
interests
Net loss
Balance as of
December 31,
2016
Repurchase of
ordinary shares
Issuance of
ordinary shares
pursuant to
share incentive
plan
Share-based
compensation
expenses
Capital
contribution to
a subsidiary
with
noncontrolling
interest
Foreign currency
translation
adjustments
Accretion on
redeemable
noncontrolling
interest
Net loss
Balance as of
December 31,
2017
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2016, 2017 and 2018
(All amounts in thousands, except for share and per share data, or otherwise noted)
Ordinary shares
Treasury Stock
Shares
Amount
RMB
Shares
Amount
RMB
Additional
paid-in
capital
RMB
Accumulated
other
comprehensive Accumulated
income/(loss)
RMB
deficit
RMB
Total Tuniu
Corporation
Shareholders’ equity
RMB
Noncontrolling
interests
RMB
Total Equity
RMB
Repurchase of
ordinary shares
Issuance of
ordinary shares
pursuant to
share incentive
plan
Share-based
compensation
expenses
Capital
contribution to
a subsidiary
with
noncontrolling
interest
Acquisition of
subsidiaries
Foreign currency
translation
adjustments
Accretion on
redeemable
noncontrolling
interest
Net loss
Balance as of
December 31,
2018
Balance as of
December 31,
2018(US$
(Note 2(d)))
—
— (9,917,211)
(141,471)
—
413,529
—
—
—
—
—
—
1
—
—
—
—
—
—
564,663
22,355
(18,130)
—
—
68,738
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,693
—
—
—
—
—
—
(141,471)
—
(141,471)
4,226
68,738
—
—
4,226
68,738
—
—
2,117
3,892
2,117
3,892
11,693
—
11,693
(2,422)
—
—
—
—
(185,512)
(2,422)
(185,512)
—
(14,037)
(2,422)
(199,549)
389,331,544
249
(19,323,900)
(304,535)
9,061,979
284,079
(5,691,409)
3,350,363
(5,830)
3,344,533
389,331,544
36
(19,323,900)
(44,293)
1,318,010
41,318
(827,781)
487,290
(848)
486,442
F-8
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016, 2017 and 2018
(All amounts in thousands, except for share and per share data, or otherwise noted)
Cash flows from operating activities:
Net loss
Depreciation of property and equipment
Amortization of intangible assets and land use right
Allowance for doubtful accounts
Change in fair value of contingent consideration
Foreign exchange loss
Loss from disposal of property and equipment
Share-based compensation expenses
Change in deferred tax liabilities
Remeasurement of equity investments
Change in fair value of investments
Gain from disposal of equity investment
Changes in operating assets and liabilities:
Accounts receivable
Amounts due from related parties
Prepayments and other current assets
Accrued interests of yield enhancement products
Other non-current assets
Accounts and notes payable
Amounts due to related parties
Salary and welfare payable
Taxes payable
Advances from customers
Accrued expenses and other liabilities
Accrued interests of amounts due to the individual investors of
yield enhancement products
Non-current liabilities
Net cash (used in)/provided by operating activities
Cash flows from investing activities:
Purchase of short-term investments
Proceeds from maturity of short-term investments
Purchase of yield enhancement products
Proceeds from maturity of yield enhancement products
Increase in loan receivable
Purchase of property and equipment and intangible assets
Cash paid for long-term investments
Proceeds from maturity of long-term investments
Cash received from disposal of equity investment
Cash paid for acquisition, net of cash received
Net cash (used in)/provided by investing activities
For the Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
US$ (Note 2(d))
(2,422,332)
66,510
145,063
30,919
(1,225)
7,597
859
92,419
(2,322)
—
—
—
(92,147)
(395,228)
(379,924)
(29,318)
288,460
133,809
3,764
42,688
(1,075)
668,567
(399,107)
8,065
(5,486)
(2,239,444)
(5,097,309)
2,847,284
(807,210)
538,485
(18,038)
(117,894)
(57,500)
—
—
(16,501)
(2,728,683)
(771,316)
65,704
150,092
45,808
5,572
673
562
98,675
(2,314)
—
—
—
(64,286)
283,901
691,932
15,114
(9,668)
(167,262)
54,398
(4,930)
20,417
(595,876)
(221,018)
(11,183)
(3,644)
(418,649)
(2,488,010)
3,271,860
—
434,977
(16,438)
(160,497)
(426,227)
—
—
(111)
615,554
(199,371)
66,903
153,258
2,568
(5,242)
14,279
1,368
68,738
(2,362)
(12,581)
(8,153)
(1,850)
(60,584)
14,810
(1,867)
10,580
(25,606)
553,445
(9,765)
(83,274)
(8,748)
(152,335)
(34,719)
(6,559)
(4,844)
268,089
(1,858,032)
4,067,804
—
172,458
(1,326,160)
(119,442)
(874,120)
91,030
3,114
(2,660)
153,992
(28,997)
9,731
22,290
374
(762)
2,077
199
9,998
(344)
(1,830)
(1,186)
(269)
(8,812)
2,154
(272)
1,539
(3,724)
80,495
(1,420)
(12,112)
(1,272)
(22,156)
(5,050)
(954)
(705)
38,992
(270,240)
591,638
—
25,083
(192,882)
(17,372)
(127,135)
13,240
453
(387)
22,398
The accompanying notes are an integral part of these consolidated financial statements.
F-9
TUNIU CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016, 2017 and 2018
(All amounts in thousands, except for share and per share data, or otherwise noted)
Cash flows from financing activities:
Proceeds from the private placement, net of issuance cost
Cash paid for repurchase of ordinary shares
Proceeds from issuance of ordinary shares upon exercise of options
Contingent consideration paid for business acquisitions
Repurchase of redeemable noncontrolling interests
Cash contribution from noncontrolling interests
Proceeds from sales/(redemption) of yield enhancement products
Repayment of short-term borrowings
Proceeds from short-term and long-term borrowings
Cash contribution from redeemable noncontrolling interest holders
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
Net (decrease)/increase in cash, cash equivalents and restricted
cash
Cash, cash equivalents and restricted cash at the beginning of year
Cash, cash equivalents and restricted cash at the end of year
Supplemental disclosure of cash flow information
Income tax paid
Supplemental disclosure of non-cash investing and financing
activities
Accrual related to purchase of property and equipment
Receivables related to exercise of stock options
Accrual related to business acquisition
For the Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
US$ (Note 2(d))
3,275,835
(19,708)
8,483
(2,250)
—
—
274,698
—
—
90,000
3,627,058
—
(166,149)
67,344
(6,800)
—
3,599
(682,760)
—
—
—
(784,766)
—
(139,070)
4,585
(6,800)
(30,000)
2,117
(171,412)
(390)
195,758
—
(145,212)
110,652
(46,025)
(21,754)
(1,230,417)
2,440,214
1,209,797
(633,886)
1,209,797
575,911
255,115
575,911
831,026
—
(20,227)
667
(989)
(4,363)
308
(24,931)
(59)
28,472
—
(21,122)
(3,164)
37,104
83,763
120,867
1,506
12,199
3,740
544
16,963
(163)
39,344
11,859
(385)
38,116
5,202
(23)
36,456
757
(3)
5,302
The accompanying notes are an integral part of these consolidated financial statements.
F-10
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 and 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, 2018, the Company’s significant consolidated subsidiaries and the consolidated Affiliated Entities are as follows:
Name of subsidiaries and
Affiliated entities
Subsidiaries of the Company:
Tuniu (HK) Limited
Tuniu (Nanjing) Information Technology Co., Ltd.
Beijing Tuniu Technology Co., Ltd. (“Beijing Tuniu”)
Xiamen Suiwang International Travel Service Co., Ltd.
Tianjin Tuniu International Travel Service Co., Ltd.
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.
Beijing Global Tour International Travel Service Co.,
Ltd.
Tuniu Insurance Brokers Co., Ltd.
2. Principal Accounting Policies
(a) Basis of Presentation
Date of establishment/acquisition
Established on May 20, 2011
Established on August 24, 2011
Established on September 8, 2008
Established on January 26, 2016
Established on March 23, 2016
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 July 1, 2015
Acquired on August 11, 2015
Place of
incorporation
Hong Kong
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%
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”).
Financial statements of 2016 have been adjusted to conform to the current year presentation. Such adjustments relate to the adoptions of
Accounting Standards Update (“ASU”) 2014-09 as further described in Note 2(s) “Revenue Recognition” and Note 2(af) “Recently Issued
Accounting Pronouncements”.
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 RMB2,407,194, RMB767,304 and
RMB185,512 for the years ended December 31, 2016, 2017 and 2018, respectively. Net cash used in operating activities was approximately
RMB2,239,444 and RMB418,649 for the years ended December 31, 2016 and 2017 respectively, and net cash provided by operating activities was
RMB268,089 for the year ended December 31, 2018. Accumulated deficit was RMB4,738,593, RMB5,505,897 and RMB5,691,409 as of
December 31, 2016, 2017 and 2018, respectively. The Group has adopted ASU No. 2014-15, “Presentation of Financial Statements – Going
Concern”. As of December 31, 2018, 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.
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
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, has controlling interest and therefore the
Company or its subsidiary is the primary beneficiary of the entity. In determining whether the Company or its subsidiary has controlling interests in
a VIE, the Company considers whether the company or its subsidiary has the power to direct activities that most significantly impact the VIE’s
economic performance, and the right to receive benefits from the VIE or the obligation right to absorb losses of the VIE that could be potentially
significant to the VIE.
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 director, and several other
PRC citizens. On September 17, 2008, Beijing Tuniu, one of the Company’s wholly 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, Beijing Tuniu 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-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
(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, 2016, 2017 and 2018, the Company and its subsidiaries received service fees of RMB109,572, RMB138,054
and RMB197,853, respectively, from its consolidated Affiliated Entities, which were eliminated in the consolidated financial statements.
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
(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)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
levying fines or confiscate the Group’s income;
revoke the Group’s business or operating licenses;
require the Group to discontinue, restrict or restructure its operations;
shut down the Group’s servers or block the Group’s websites and mobile platform;
restrict or prohibit the use of the Group’s financing proceeds to finance its business and operations in China; or
take other regulatory or enforcement actions against the Group that could be harmful to the Group’s business
The imposition of any of these penalties may result in a material and adverse effect on the Group’s ability to conduct the Group’s business. In
addition, the imposition of any of these penalties may cause the Group to lose the right to direct the activities of Nanjing Tuniu (through its equity
interest in its subsidiaries) or the right to receive economic benefits from the Affiliated Entities. Therefore, a risk exists in that the Group would no
longer be able to consolidate Nanjing Tuniu and its subsidiaries. In March 2019, the PRC National People’s Congress promulgated the Foreign
Investment Law, or the 2019 PRC Foreign Investment Law, which will become effective on January 1, 2020 and will replace the major existing
laws and regulations governing foreign investment in the PRC. The approved Foreign Investment Law does not touch upon the relevant concepts
and regulatory regimes that were historically suggested for the regulation of VIE structures, and thus this regulatory topic remains unclear under the
Foreign Investment Law. As the 2019 PRC Foreign Investment Law is newly adopted and relevant government authorities may promulgate more
laws, regulations or rules on the interpretation and implementation of the 2019 PRC Foreign Investment Law, the possibility can’t be ruled out that
the VIE structure adopted by the Group may be deemed as a method of foreign investment by, any of such future laws, regulations and rules, which
cause significant uncertainties as to whether the Group's VIE structures would be treated as a method of foreign investment. If the Group's VIE
structure would be deemed as a method of foreign investment under any of such future laws, regulations and rules, and any of the Group's
businesses operation would fall in the “negative list” for foreign investment that is subject to any foreign investment restrictions or prohibitions, the
Group would be required to take further actions to comply with such laws, regulations and rules, which may materially and adversely affect the
Group's current corporate structure, corporate governance, business, financial conditions and results of operations.
Summary financial information of the Affiliated Entities in the consolidated financial statements
As of December 31, 2018, the aggregate accumulated deficit of the Affiliated Entities was RMB3,764 million prior to the elimination of
transactions between the Affiliated Entities and the Company or the Company’s subsidiaries.
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
(b) Principles of Consolidation - continued
The following assets, liabilities, revenues and loss of the Affiliated Entities were included in the consolidated financial statements as of
December 31, 2017 and 2018 and for the years ended December 31, 2016, 2017 and 2018:
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net
Intercompany receivables
Prepayments and other current assets
Yield enhancement products and accrued interest
Total current assets
Non-current assets
Long-term investments
Property and equipment, net
Intangible assets, net
Goodwill
Yield enhancement products over one year and accrued interest
Other non-current assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Accounts and notes payable
Salary and welfare payable
Taxes payable
Advances from customers
Intercompany payable
Accrued expenses and other current liabilities
Amount due to the individual investors of yield enhancement products
Total current liabilities
Non-current liabilities
Total liabilities
F-15
2017
RMB
As of December 31,
2018
RMB
US$ (Note 2(d))
289,259
90,854
1,685,045
140,464
1,595,225
228,604
21,337
4,050,788
501,227
84,755
95,550
137,074
170,505
27,258
1,016,369
5,067,157
629,707
157,440
8,952
1,145,306
4,966,577
334,286
177,971
7,420,239
1,378,584
8,798,823
254,373
261,559
584,032
266,225
499,276
769,824
—
2,635,289
1,022,453
137,267
85,388
137,074
—
66,335
1,448,517
4,083,806
1,251,543
82,254
11,809
998,041
5,141,083
347,443
—
7,832,173
17,838
7,850,011
36,997
38,042
84,944
38,721
72,617
111,966
—
383,287
148,710
19,965
12,419
19,937
—
9,648
210,679
593,966
182,029
11,963
1,718
145,159
747,740
50,533
—
1,139,142
2,594
1,141,736
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
Net revenues
Net loss
Net cash (used in)/provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
For the Years Ended December 31,
2016
RMB
10,562,269
(2,034,208)
(972,677)
(208,278)
995,740
2017
RMB
1,954,746
(348,755)
(232,926)
(1,021,286)
1,303,661
2018
RMB
1,524,924
(29,031)
31,282
(465,029)
569,565
US$ (Note 2(d))
221,791
(4,222)
4,550
(67,636)
82,840
Certain financial data of 2016 listed in the tables above have been recast as a result of the adoption of Accounting Standards Update (“ASU”)
2014-09 as further described in Note 2(s) “Revenue Recognition” and Note 2(af) “Recently Issued Accounting Pronouncements”.
Currently there is no contractual arrangement that could require the Company to provide additional financial support to the Affiliated Entities.
As the Company is conducting its business mainly through the Affiliated Entities, the Company may provide such support on a discretionary basis
in the future, which could expose the Company to a loss.
Under the contractual arrangements with Nanjing Tuniu and through its equity interest in its subsidiaries, the Group has the power to direct the
activities of the Affiliated Entities and direct the transfer of assets out of the Affiliated Entities. As the consolidated Affiliated Entities are each
incorporated as a limited liability company under the PRC Company Law, the creditors do not have recourse to the general credit of the Company
for all of the liabilities of the consolidated Affiliated Entities.
(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
fair value of short-term and long-term investments, recoverability of receivables, estimating useful lives of property and equipment and intangible
assets, impairment for goodwill and long-lived assets, the purchase price allocation in relation to business combination, fair value of contingent
considerations with respect to business combinations, losses due to committed tour reservations, the valuation allowance for deferred tax assets and
the determination of uncertain tax positions.
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
(d) Functional Currency and Foreign Currency Translation
The Group uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company and its subsidiaries incorporated outside
of PRC is the United States dollar (“US$”), while the functional currency of the PRC entities in the Group is RMB as determined based on ASC
830, Foreign Currency Matters.
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates
prevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are re-measured at the balance sheet date exchange
rate. The resulting exchange differences are included in the consolidated statements of comprehensive loss as foreign exchange gains / losses.
When preparing the consolidated financial statements presented in RMB, assets and liabilities of the Company and its subsidiaries incorporated
outside of PRC are translated into RMB at fiscal year-end exchange rates, and equity accounts are translated into RMB at historical exchange rates.
Income and expense items are translated at average exchange rates prevailing during the respective fiscal years. Translation adjustments arising
from these are reported as foreign currency translation adjustments and are shown as a component of accumulated other comprehensive income or
loss in the consolidated statement of changes in shareholders’ equity.
The unaudited United States dollar amounts disclosed in the accompanying financial statements are presented solely for the convenience of the
readers. Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the rate of US$1.00 = RMB6.8755 on
December 31, 2018, as set forth in H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could
have been, or could be, converted into US$ at that rate on December 31, 2018, or at any other rate.
(e) Fair Value Measurement
The Group defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be
recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that
market participants would use when pricing the asset or liability.
The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The three levels of inputs may be used to measure fair value include:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the
asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the
measurement of the fair value of the assets or liabilities.
The Group’s financial instruments include cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts
payable, amounts due from and due to related parties, balance in relation to yield enhancement products, long-term investments in financial
products, contingent consideration for acquisitions 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 except for certain investments which are carried at fair
value at each balance sheet date. Certain short-term and long-term investments in financial products and securities classified within Level 2 are
valued using directly or indirectly observable inputs in the market place. Certain long-term investments in financial products classified within Level
3 are valued based on a model utilizing unobservable inputs which require significant management judgment and estimation.
The Group’s assets and liabilities measured at fair value on a recurring basis are summarized below:
Short-term investments
Long-term investments
Fair Value Measurement Using Significant Other
Observable Inputs (Level 2)
2017
RMB
3,084,634
394,923
RMB
562,794
52,441
2018
US$ (Note 2(d))
81,855
7,627
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
(e) Fair Value Measurement - continued
Short-term investments
Long-term investments
Contingent consideration for acquisitions - short term
Contingent consideration for acquisitions - long term
The roll forward of major Level 3 investments are as following:
Fair value of Level 3 investment at the beginning of the year
Addition
Decrease
The change in fair value of the investments
Fair value of Level 3 investment at the end of the year
Fair Value Measurement Using
Unobservable Inputs (Level 3)
2017
RMB
—
—
26,925
11,191
2018
RMB
255,237
844,843
25,692
10,764
US$ (Note 2(d))
37,123
122,877
3,756
1,566
2017
RMB
As of December 31,
2018
—
—
—
—
RMB
—
1,547,135
(457,564)
10,509
1,100,080
US$ (Note 2(d))
—
225,022
(66,550)
1,528
160,000
The Company determined the fair value of its investments by using income approach with significant unobservable inputs of future cashflows
and discount rate ranging from 6.0% to 9.0%.
The roll forward of contingent consideration for acquisitions is as below:
Balance at the beginning of the year
Addition
Net change in fair value
Payment
Balance at the end of the year
39,344
—
5,572
(6,800)
38,116
As of December 31,
2018
2017
RMB
RMB
38,116
10,382
(5,242)
(6,800)
36,456
US$ (Note 2(d))
5,544
1,509
(762)
(989)
5,302
Contingent consideration is valued using an expected cash flow method with unobservable inputs including the probability to achieve the
operating and financial targets, which is assessed by the Group, in connection with the contingent consideration arrangements.
(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 travellers’ rights and interests, (ii) cash deposits required by
China Insurance Regulatory Commission for engaging in insurance agency or brokering activities. (iii) the deposits held in designated bank
accounts for issuance of bank acceptance notes and letter of guarantee, and required by the Group’s business partners.
(h) Short-term Investments
Short-term investments are comprised of (i) held-to-maturity investments such as time deposits, which are due between three months and one
year and stated at amortized cost; and (ii) equity securities and 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. These investments are stated at fair value. Changes in the
fair value are reflected in the consolidated statements of comprehensive loss. There was no other-than-temporary impairment of short-term
investments for the years ended December 31, 2016, 2017 and 2018.
(i) Accounts Receivable, net
The Group’s accounts receivable mainly consist of amounts due from the corporate customers, travel agents, insurance companies and travel
boards or bureaus, which are carried at the original invoice amount less an allowance for doubtful accounts. The Group reviews accounts receivable
on a periodic basis and makes allowances when there is doubt as to the collectability of individual balances. The Group evaluates the collectability
of accounts receivable considering many factors including reviewing accounts receivable balances, historical bad debt rates, payment patterns,
counterparties’ credit worthiness and financial conditions, and industry trend analysis. The Group recognized allowance for doubtful accounts of
RMB5,297, RMB13,332 and RMB3,299 for the years ended December 31, 2016, 2017 and 2018, respectively.
The following table summarized the details of the Group’s allowance for doubtful accounts:
Balance at beginning of year
Addition
Reversal
Write-offs
Balance at end of period
For the Years Ended December 31,
2016
RMB
2017
RMB
—
5,297
—
(441)
4,856
4,856
13,332
—
(1,283)
16,905
2018
RMB
16,905
4,200
(901)
—
20,204
US$ (Note 2(d))
2,459
611
(131)
—
2,939
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
(j) Long-term investments
Long-term investments include equity investments, held-to-maturity investments and other long-term investments.
Equity investments
The Group accounts for the investments in entities with significant influence under equity-method accounting. Under this method, the Group’s
pro rata share of income (loss) from an investment is recognized in the consolidated statements of comprehensive loss. Dividends received reduce
the carrying amount of the investment. Equity-method investment is reviewed for impairment by assessing if the decline in fair value of the
investment below the carrying value is other-than-temporary. In making this determination, factors are evaluated in determining whether a loss in
value should be recognized. These include consideration of the intent and ability of the Group to hold investment and the ability of the investee to
sustain an earnings capacity, justifying the carrying amount of the investment. Impairment losses are recognized when a decline in value is deemed
to be other-than-temporary.
The Group adopted the ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets
and Financial Liabilities”, effective from January 1, 2018. The Group elects a measurement alternative for equity investments that do not have
readily determinable fair values and where the Group does not have the ability to exercise significant influence over operating and financial policies
of the entity. Under the measurement alternative, the Group measures these investments at cost, less any impairment, plus or minus changes
resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. An impairment loss is
recognized in the consolidated statements of comprehensive loss equal to the excess of the investment's cost over its fair value when the impairment
is deemed other-than-temporary.
Held-to-maturity investments
The investments that the Group intends and is able to hold to maturity are classified as held-to-maturity investments and are stated at amortized
cost, and interest income is recorded in the consolidated statements of comprehensive income. The Group monitors these investments for other-than-
temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of
the companies including current earnings trends and other company-specific information.
Other long-term investments
Other long-term investments include financial products with maturities over one year and securities including perpetual bonds and preferred
shares issued by companies, which are carried at their fair value at each balance sheet date and changes in fair value are reflected in the consolidated
statements of operations and comprehensive income.
No event had occurred and indicated that other-than-temporary impairment existed and therefore the Group did not record any impairment
charges for its investments for the years ended December 31, 2016, 2017 and 2018.
(k) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and impairment if applicable. Property and equipment are depreciated
over the estimated useful lives on a straight-line basis. The estimated useful lives are as follows:
Category
Computers and equipment
Buildings
Furniture and fixtures
Vehicles
Software
Leasehold improvements
Estimated useful life
3 - 5 years
16 - 20 years
3 - 5 years
3 - 5 years
5 years
Over the shorter of the lease term or the estimated useful life of the
asset ranging from 1 – 9 years
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
(k) Property and Equipment - continued
Construction in progress represents leasehold improvements under construction or being installed and is stated at cost. Cost comprises original
cost of property and equipment, installation, construction and other direct costs. Construction in progress is transferred to leasehold improvements
and depreciation commences when the asset is ready for its intended use.
Gain or loss on the disposal of property and equipment is the difference between the net sales proceeds and the carrying amount of the relevant
assets and is recognized in the consolidated statements of comprehensive loss.
(l) Land use right, net
Land use right represents the payments for usage of land for office buildings, which is recorded at cost less accumulated amortization.
Amortization is provided on a straight-line basis over their respective lease period which is 49.
(m) 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 RMB8,516, RMB19,545 and RMB75,443 for the years ended December 31, 2016, 2017
and 2018, respectively. The amortization expense for capitalized software costs amounted to RMB3,768, RMB5,729 and RMB14,699 for the years
ended December 31, 2016, 2017 and 2018, respectively. The unamortized amount of capitalized internal use software development costs was
RMB91,684 as of December 31, 2018.
(n) Business combination
U.S. GAAP requires that all business combinations not involving entities or businesses under common control be accounted for under the
purchase method. The Group has adopted ASC 805 “Business Combinations”, and the cost of an acquisition is measured as the aggregate of the fair
values at the date of exchange of the assets given, liabilities incurred and equity instruments issued. The transaction costs directly attributable to the
acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair
value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of the (i) the total of cost of acquisition, fair
value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of
the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognized directly in the consolidated statements of operations and comprehensive income.
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and
valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, the
number of years on which to base the cash flow projections, as well as the assumptions and estimates used to forecast the future cash inflows and
outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry
comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period.
Although management believes that the assumptions applied in the determination are reasonable based on information available at the date of
acquisition, actual results may differ from the forecasted amounts and the difference could be material. The Group recognized adjustments to
provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.
A noncontrolling interest is recognized to reflect the portion of a subsidiary’s equity which is not attributable, directly or indirectly, to the
Group. Consolidated net loss on the consolidated statements of comprehensive loss includes the net loss attributable to noncontrolling interests
when applicable. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in the
Group’s consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in the
consolidated statements of cash flows when applicable.
Subsequent to the initial measurement of acquisition, adjustments to the amount of contingent consideration are recognized as a gain or loss
during the period of adjustments, and are reflected in other operating income.
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
(o) 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. Separable intangible assets arising from acquisitions consist of trade
names, customer relationship, software, technology, 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, 2016, 2017 and 2018.
(p) 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 performed goodwill impairment test and no impairment loss was recognized for the years ended December 31, 2016, 2017 and
2018.
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
(q) 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, 2016, 2017 and 2018.
(r) Advances from Customers
Advances from customers represent the amounts travellers pay in advance to purchase packaged tours or other travelling products. Among the
cash proceeds from travellers, the amounts payable to tour operators are recorded as accounts payable and the remaining are recognized as revenues
when revenue recognition criteria are met.
(s) Revenue Recognition
The Group’s revenue is primarily derived from sales of packaged tours and other service fees.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which amends
the existing accounting standards for revenue recognition. Subsequently, the FASB issued several amendments which amends certain aspects of the
guidance in ASC 2014-09 (ASU No. 2014-09 and the related amendments are collectively referred to as “ASC 606”). According to ASC 606,
revenue is recognized when control of the promised services is transferred to our customers, in an amount that reflects the consideration the Group
expects to be entitled to in exchange for those services. The Group adopted this new revenue standard effective from January 1, 2017 by applying
the full retrospective method. Refer to note 2(af) for the effects of the adoption of ASC 606 on the Group’s consolidated statements of
comprehensive loss for the year ended December 31, 2016. There are no significant estimates in the Group’s revenue arrangements.
Packaged tours: Packaged tours include organized tours which offer pre-arranged itineraries, transportations, accommodations, entertainments,
meals and tour guide services; and self-guided tours which consist of combinations of air tickets and hotel bookings and other optional add-ons,
such as airport pick-ups that the travellers choose at their discretion.
Prior to January 2017, substantially all of the Group’s revenues from organized tours were recognized on a gross basis, which represented
amounts charged to and received from travellers (who were the Group’s customers). The Group was the primary obligor in the organised tour
arrangements and bore the risks and rewards, including the travellers’ acceptance of products and services delivered. Even though the Group did not
generally assume the substantive inventory risk before travellers placed an order, the Group was the party retained by and paid by the travellers, and
the Group was responsible to (and solely authorized to) refund travellers their payments in situations of customer disputes. Further, the Group
independently selected travel service suppliers, and determined the prices charged to customers and paid to its travel suppliers.
Since the beginning of 2017, the Group has implemented certain changes in its arrangements with the tour operators. The Group’s role in the
organized tour arrangements has changed from being a principal into an agent that provides tour booking services to the tour operators and
travellers. Under the current organized tour arrangements, the tour operators are primarily responsible for all aspects of providing services relating
to the tour and responsible for the resolution of customer disputes and any associated costs. As a result of the change of the Group’s role, starting
from January 1, 2017, revenues from organized tours (except for those that the Group takes substantive inventory risks and the self-operated local
tour operators in which the Group acts as a principal, as discussed below) are generally reported on net basis, representing the difference between
what the Group receives from the travellers and the amounts due to the tour operators.
Revenues from self-guided tours are recognized on a net basis, as the Group has no involvement in determining the service, and provides no
additional services to travellers other than the booking services. Suppliers are responsible for all aspects of providing the air transportation and hotel
accommodation, and other travel-related services. As such, the Group is an agent for the travel service providers in these transactions and revenues
are reported on a net basis.
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
(s) Revenue Recognition - continued
Under certain circumstances, the Group may enter into contractual commitments with suppliers to reserve tours, and is required to pay a deposit
to ensure tour availabilities. 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. For packaged tour
arrangements that the Group undertakes inventory risk which is considered to be substantive, revenues are recognized on gross basis. Revenues for
such arrangements that the Group undertakes substantive inventory risk were RMB497, 918 and RMB241,181 for the years ended December 31,
2017 and 2018, which were recorded in revenues for packaged tours.
In 2018, the Group expanded self-operated local tour operators in various destinations by directly providing destination-based services to the
organized tour customers, starting from their arrival at the destination and all the way until they depart from the destination. As a self-operated local
tour operator, the Group integrates the underlying resources such as transportations, accommodations, entertainments, meals and tour guide services
from selected suppliers, directs the selected vendors to provide services on the Group's behalf, and hence sets up the price for the tour. Besides, the
Group is primarily responsible for fulfilling the promise of the whole packaged tours service, which is a single performance obligation.
Accordingly, the Group is a principal for the self-operated local tour operator business and recognizes revenue on a gross basis in accordance with
ASC 606. Revenues from the self-operated tour operator business are recognized over time during the period of the tours when control over the tour
services is transferred to the customers. Revenues for the self-operated local tour operator business were RMB509,737 for the year ended December
31, 2018, which were recorded in revenues for packaged tours.
Under ASC 606, revenues from organized tours for which the Group was a principal for year 2016 were recognized over the period of the tours
when control over the tour services was transferred to the customers over such period. Starting from January 1, 2017, under the current
arrangements for the organized tours (except for the self-operated local tour operators in which the Group acts as a principal, as discussed above),
for which the Group's role was changed into an agent, revenues are recognized when the tours depart, as control over the tour booking services is
transferred to the customers when the tour booking is completed and successful.
Under ASC 606, revenues from self-guided tours are recognized when the tours depart.
Other revenues: Other revenues primarily comprise revenues generated from (i) service fees received from insurance companies, (ii)
commission fees from other travel-related products and services, such as tourist attraction tickets, visa application services, accommodation
reservation and transportation ticketing, (iii) fees for advertising services that we provide primarily to domestic and foreign tourism boards and
bureaus, and (iv) service fees for financial services and interest income for yield enhancement products. Revenue is recognized when the services
are rendered or when the tickets are issued.
The Group commenced the financial business in 2015. Certain domestic financial assets exchanges (the "Exchange") and trust companies
offered the yield enhancement products through the Group’s online platform and the Group charged these companies for the service fees which were
recorded as other revenue upon the delivery of service. The service revenues were insignificant for the years ended December 31, 2016, 2017 and
2018.
Further, from 2016 in certain cases, the Group purchased yield enhancement products with maturities ranged from three months to two years
from the Exchanges and trust companies and split these products into smaller amount yield enhancement products with lower yield rate and shorter
maturities within one year, which were offered to individual investors through the Group’s online platform. The split of the products were arranged
by Exchanges. As of December 31, 2017, yield enhancement products purchased from the Exchanges and trust companies with maturities within
one year and accrued interest with the balances of RMB31,337 were recorded in current assets, and balances with the maturities over one year of
RMB170,505 were recorded in non-current assets. Interest revenues of RMB50,867 were recorded as other revenues for the year ended December
31, 2017. As of December 31, 2017, yield enhancement products held by the individual investors with maturities within one year of RMB177,971
were recorded in current liabilities. Interest costs of RMB34,499 were recorded as cost of revenue for the year ended December 31, 2017. In 2018,
the Group terminated this financial service thus there were no related balances as of December 31, 2018. The interest revenues and costs were
insignificant for the year ended December 31, 2018.
The Group also provided account receivables factoring service and cash lending service to customers and fees charged in connection with these
financial services were recorded as other revenue over the period of the service rendered. The amount of such service revenue for the year ended
December 31, 2018 was RMB117,537.
The Group provided online lending service in 2017 and fees charged in connection with this service was RMB220,701 for the year ended
December 31, 2017. This service was terminated in late 2017.
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
(s) Revenue Recognition - continued
Customer incentives
From time to time, travelers are offered coupons, travel vouchers, membership points, or cash rewards as customer incentives. For customer
incentives offered where prior purchase is not required, the Group accounts for them as a reduction of revenue when the coupons and vouchers are
utilized to purchase travelling products or as selling and marketing expenses when membership points are redeemed for merchandises. For customer
incentives offered from prior purchase, the Group estimates the amount associated with the future obligation to customers, and records as a
reduction of revenue when the prior purchase revenue is initially recognized. Unredeemed incentives are recorded in other current liabilities in the
consolidated balance sheets. The Group estimates liabilities under the customer loyalty program based on accumulated customer incentives, and the
estimate of probability of redemption in accordance with the historical redemption pattern. The actual expenditure may differ from the estimated
liability recorded. As of December 31, 2017 and 2018, liabilities recorded related to membership points and cash rewards were RMB2,142 and
RMB1,395, respectively.
Business and related taxes, and value-added tax
The Group was mainly subject to business and related taxes on services provided in the PRC at applicable rates before May 1, 2016, which
were deducted from revenues to arrive at net revenue. On May 1, 2016, the transition from the imposition of PRC business tax to the imposition of
value-added tax (“VAT”) was expanded to all industries in China. The Group’s business has been subject to VAT since that date, and the Group is
permitted to offset input VAT (VAT that is paid in the acquisition of goods or services, and which is supported by valid VAT invoices received
from vendors) against their VAT liability. VAT on the invoiced amount collected by the Group on behalf of tax authorities in respect of services
provided, net of VAT paid for purchases, is recorded as a liability until it is paid to the tax authorities. The Group is also subject to certain
government surcharges on VAT payable in the PRC and these surcharges are recorded in cost of revenues.
F-24
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
(t) Cost of Revenues
Cost of revenues mainly consists of salaries and other compensation-related expenses related to the Group’s tour advisors, customer services
representatives, and other personnel related to tour transactions, and other expenses directly attributable to the Group’s principal operations,
primarily including payment processing fees, telecommunication expenses, rental expenses, depreciation expenses, interest expenses for yield
enhancement products, and other service fee for financial service. For the arrangements where the Group secures availabilities of tours and bears
substantive inventory risks, and for the self-operated local tour operators since 2018 and the organized tours prior to the beginning of 2017 in which
the Group act as a principal, from which revenues are recognized on a gross basis, cost of revenues also includes the amount paid to tour operators
or suppliers.
Losses arising from the committed tour reservations in above mentioned arrangements where the Group secures availabilities of tours were
recorded in “cost of revenues” in the consolidated statements of comprehensive loss, which were RMB45,494 for the year ended December 31,
2016. Commencing in 2017, since the Group changed its role from principal to agent in the organized tour arrangements and revenues were
recognized on a net basis, losses arising from the committed tour reservations were recorded as deductions to revenues, which were RMB11,009 for
the year ended December 31, 2017 and were insignificant for the year ended December 31, 2018.
(u) Advertising Expenses
Advertising expenses, which primarily consist of online marketing expense and brand marketing expenses through various forms of media, are
recorded in sales and marketing expenses as incurred. Advertising expenses were RMB1,270,598, RMB302,987 and RMB222,073 for the years
ended December 31, 2016, 2017 and 2018, respectively.
(v) 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 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(m)).
F-25
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
2. Principal Accounting Policies - continued
(w) 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, 2017 and 2018, deferred rent of
RMB10,332 and RMB5,412 was recorded as current liabilities and RMB9,548 and RMB5,304 was recorded as non-current liabilities, respectively.
(x) Share-based Compensation
The Company applies ASC 718, “Compensation — Stock Compensation” to account for its share-based compensation program including share
options and restricted shares. 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. For options, the fair values are calculated using the binominal option pricing model. Share-
based compensation expenses are recorded net of an estimated forfeiture rate over the service period using the straight-line method. The
modifications of the terms or conditions of the shared-based award are treated as an exchange of the original award for a new award. The
incremental compensation expense is equal to the excess of the fair value of the modified award immediately after the modification over the fair
value of the original award immediately before the modification. For options already vested as of the modification date, the Company immediately
recognized the incremental value as compensation expenses. For options still unvested as of the modification date, the incremental compensation
expenses are recognized over the remaining service period of these options.
The Company’s 2008 Incentive Compensation Plan allows the plan administrator to grant options and restricted shares to the Company’s
employees, directors, and consultants. The plan administrator is the Company’s board of directors or a committee appointed and determined by the
board. The board may also authorize one or more officers of the Company to grant awards under the plan. Under the 2008 Incentive Compensation
Plan, options granted to employees vest upon satisfaction of a service condition, which is generally satisfied over four years. Additionally, the
incentive plan provides an exercisability clause where employees can only exercise vested options upon the occurrence of the following events:
(i) after the Company’s ordinary shares has become a listed security, (ii) in connection with or after a triggering event (defined as a sale, transfer, or
disposition of all or substantially all of the Company’s assets, or a merger, consolidation, or other business combination transaction), or (iii) if the
employee obtains all necessary governmental approvals and consents required. Options for which the service condition has been satisfied are
forfeited should employment terminate three months prior to the occurrence of an exercisable event, which substantially creates a performance
condition. This performance condition was met upon completion of the Company’s initial public offering, and the associated share-based
compensation expense for awards vested as of that date were recognized on May 9, 2014.
F-26
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
(x) Share-based Compensation - continued
In April 2014, the Company adopted the 2014 Share Incentive Plan, which contains no such exercisability clause. For details of the 2014 Share
Incentive Plan, please refer to Note 17 of the consolidated financial statements.
The Group recognized share-based compensation expense of RMB92,419, RMB98,675 and RMB68,738 for the years ended December 31,
2016, 2017 and 2018, respectively, which was classified as follows:
Cost of revenue
Research and product development
Sales and marketing
General and administrative
Total
(y) Income Taxes
For the Years Ended December 31,
2016
RMB
2017
RMB
891
5,702
1,390
84,436
92,419
1,075
6,864
1,650
89,086
98,675
2018
RMB
1,483
9,124
1,305
56,826
68,738
US$ (Note 2(d))
216
1,327
190
8,265
9,998
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
U.S. GAAP prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. The guidance also provides for the derecognition of income tax assets and liabilities, classification of current and deferred
income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods,
and income tax disclosures. Significant judgment is required in evaluating the Group’s uncertain tax positions and determining its provision for
income taxes. As of December 31, 2017 and 2018, 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.
F-27
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
(z) 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 RMB256,801, RMB263,618 and RMB222,304 for the years ended December 31,
2016, 2017 and 2018, respectively.
(aa) 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 RMB21,098, RMB27,322 and RMB51,357 for the years ended December 31, 2016, 2017 and 2018, respectively.
(ab) 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. Accretion of the redeemable noncontrolling interests is deducted from the net income (loss) to
arrive at net income (loss) attributable to the Company’s ordinary shareholders. Diluted earnings (loss) per share is calculated by dividing net
income (loss) attributable to ordinary shareholders by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding
during the period. Ordinary equivalent shares consist of unvested restricted shares 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. 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.
(ac) 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.
F-28
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
(ad) Treasury stock
On August 23, 2016, the Company’s board of directors authorized a share repurchase program under which the Company may repurchase up to
US$150 million worth of its ADS over the next 12 months. On January 12, 2018, the Company’s board of directors authorized an additional share
repurchase program under which the Company was authorized to repurchase up to US$100 million worth of the Company’s ordinary shares or
American depositary shares representing ordinary shares over the next 12 months. The share repurchase programs permitted the Company to
purchase shares from time to time on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through
other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations. The repurchased shares
were accounted for under the cost method and presented as “treasury stock” in equity on the Group’s consolidated balance sheets. For the year
ended December 31, 2018, the Group reissued 564,663 shares to employees upon their exercise of share options or vesting of restricted share units
under the Group’s share compensation plans. The Company recognizes the difference in additional paid-in capital on the reissuance of the shares
when reissuing treasury stock at an amount different from the average cost the Company paid to repurchase the treasury stock.
(ae) 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.
(af) Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which amends
the existing accounting standards for revenue recognition. Subsequently, the FASB issued several amendments which amends certain aspects of the
guidance in ASC 2014-09 (ASU No. 2014-09 and the related amendments are collectively referred to as “ASC 606”). The Group adopted this new
revenue standard effective from January 1, 2017 by applying the full retrospective method. The new revenue standard has mainly changed the
timing of revenue recognition. Under ASC 606, for 2016, instead of recognizing revenue at the end of the organized tours and self-guided tours in
accordance with ASC 605, revenues from organized tours are now recognized over the period of the tours and revenues from self-guided tours are
recognized on the departure day. In addition, the new revenue standard also changes the presentation of customer incentives. Under ASC 606, the
estimated amount associated with the future obligation to customers is now recorded as a reduction of revenue instead of within sales and marketing
expenses under incremental cost model in accordance ASC 605. Following the adoption of ASC 606, the revenue recognition for others services
remained materially consistent with the historical practice. See Note 2(s) for details.
F-29
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
(af) Recently Issued Accounting Pronouncements - continued
The following table presents the full retrospective impact of the above-described changes upon adoption of ASC 606 on the Group’s
consolidated statements of operations for the year ended December 31, 2016:
Packaged tours
Others
Total revenues
Net revenues
Cost of revenues
Gross profit
Sales and marketing
Total operating expenses
Loss from operations
Loss before income tax expense
Net loss
Net loss attributable to noncontrolling interests
Net loss attributable to Tuniu Corporation
Net loss attributable to ordinary shareholders
Net loss
Comprehensive loss
Comprehensive loss attributable to noncontrolling interests
Comprehensive loss attributable to Tuniu Corporation
Net loss per share-basic and diluted
For the Year Ended December 31, 2016
As Reported Adoption of ASC 606 As Adjusted
RMB
RMB
10,179,977
385,603
10,565,580
10,548,273
(9,921,304)
626,969
(1,908,424)
(3,146,293)
(2,519,324)
(2,444,306)
(2,442,595)
(15,470)
(2,427,091)
(2,427,197)
(2,442,595)
(2,208,695)
(15,470)
(2,193,191)
(6.50)
(32,829)
15,497
(17,332)
(17,332)
29,568
12,236
8,027
8,027
20,263
20,263
20,263
366
19,897
19,897
20,263
20,263
366
19,897
0.05
RMB
10,147,148
401,100
10,548,248
10,530,941
(9,891,736)
639,205
(1,900,397)
(3,138,266)
(2,499,061)
(2,424,043)
(2,422,332)
(15,104)
(2,407,194)
(2,407,300)
(2,422,332)
(2,188,432)
(15,104)
(2,173,294)
(6.45)
The following table presents the full retrospective impact of the above-described changes upon adoption of ASC 606 on the Group’s
consolidated statements of cash flows for the year ended December 31, 2016:
For the Year Ended December 31, 2016
As Reported Adoption of ASC 606 As Adjusted
RMB
RMB
RMB
Cash flows from operating activities:
Net loss
Changes in operating assets and liabilities:
Accounts receivable
Accounts payable
Advances from customers
(2,442,595)
20,263
(2,422,332)
(76,810)
78,768
728,534
(15,337)
55,041
(59,967)
(92,147)
133,809
668,567
F-30
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
(af) Recently Issued Accounting Pronouncements – continued
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of
Financial Assets and Financial Liabilities”. ASU 2016-01 changes how entities measure certain equity investments and present changes in the fair
value of financial liabilities measured under the fair value option that are attributable to their own credit. The guidance also changes certain
disclosure requirements and other aspects of previous U.S. GAAP. ASU 2016-01 is effective for fiscal years and interim periods within those years
beginning after December 15, 2017. Effective from January 1, 2018, the Group adopted the new guidance related to accounting for equity
investments and financial liabilities under the fair value option. Upon adoption of the ASU 2016-01, the Group elected a measurement alternative
for equity investments that do not have readily determinable fair values and where the Group does not have the ability to exercise significant
influence over operating and financial policies of the entity. Under the measurement alternative, the Group measured these investments at cost, less
any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the
same issuer. Before 2018, such investments were classified as cost method investments and were measured at cost, subject to impairment
assessment. See Note 7 for details.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”(“ASU 2016-02”), which requires lessees to recognize assets and
liabilities for all leases with lease terms of more than 12 months on the balance sheet. Under the new guidance, the recognition, measurement, and
presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. The ASU
2016-02 is effective for annual and interim periods beginning after December 15, 2018. The ASU initially required a modified retrospective
transition approach for existing leases, whereby the new leases standard will be applied to the earliest year presented. In July 2018, the FASB issued
ASU 2018-11, which provides another transition method, the additional transition method, in addition to the existing transition method by allowing
entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of
retained earnings in the period of adoption. The Group will adopt this new guidance by using the additional transition method for the year ended
December 31, 2019 and interim periods in the year ended December 31, 2019. The Group has inventoried its leases and continues to review its other
contractual arrangements to identify any implied leases. The Group currently believes that there will be no material impact on operating results or
cash flows, and that the most significant effects of adoption will be the recognition of new right-of-use assets and lease liabilities on the Group’s
balance sheet for its various office facility operating leases. A cumulative-effect adjustment (the amount of which has not yet been determined) will
be recognized to the opening balance of retained earnings in the period of adoption with prior period financial information not been adjusted.
In June 2016, the FASB issued ASU No. 2016-13 (ASU 2016-13), “Financial Instruments – Credit Losses”, which introduces new guidance
for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on
certain types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity debt securities, loans and net
investments in leases. The new guidance also modifies the impairment model for available-for-sale debt securities and requires the entities to
determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that
entities may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. The
ASU 2016-13 is effective for public companies for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
The Group is in the process of evaluating the impact of adopting this guidance.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments (a consensus of the Emerging Issues Task Force)” (“ASU 2016-15”), which amends the guidance in ASC 230 on the classification of
certain cash receipts and payments in the statement of cash flows. The ASU 2016-15 is effective for annual and interim periods beginning after
December 15, 2017 and early adoption is permitted. The adoption of this new guidance did not have a material impact on the consolidated financial
statements for 2018.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB
Emerging Issues Task Force)” (“ASU 2016-18”), which amends ASC 230 to add or clarify guidance on the classification and presentation of
restricted cash in the statement of cash flows. The ASU requires that a statement of cash flows explain the change during the period in the total of
cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-
of-period total amounts shown on the statement of cash flows. The ASU 2016-18 is effective for annual and interim periods beginning after
December 15, 2017 and effective from January 1, 2018, the Group adopted the new guidance and retrospectively adjusted the prior periods
presented in the consolidated statement of cash flows. The changes in restricted cash in the consolidated cash flows were RMB214,436 and
RMB32,752 for the years ended December 31, 2016 and 2017, respectively, which were no longer presented within investing activities and were
retrospectively included in the changes of cash, cash equivalents and restricted cash as required. As of December 31, 2018, total cash, cash
equivalents, and restricted cash shown in the consolidated statement of cash flows include cash and cash equivalents of RMB560,356 and restricted
cash of RMB270,670 within the consolidated balance sheets.
In January 2017, the FASB issued ASU 2017-01 (ASU 2017-01), “Business Combinations (Topic 805): Clarifying the Definition of a
Business”, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions
or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a
business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is
effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. As of January 1, 2018, the
Group prospectively adopted the ASU. Upon adoption, the standard impacts how the Group assess future acquisitions (or disposals) of assets or
businesses. The adoption of this new guidance did not have a material impact on the consolidated financial statements for 2018.
F-31
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
(af) Recently Issued Accounting Pronouncements - continued
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment” (“ASU 2017-04”), which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of
step 2 of the goodwill impairment test. As a result, under the ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to
that reporting unit. The ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted for interim or
annual goodwill impairment tests performed on testing dates after January 1, 2017. The Group is in the process of evaluating the impact of adopting
this guidance.
In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718)” that provides additional guidance around
which changes to a share-based payment award requires an entity to apply modification accounting. Specifically, an entity is to account for the
effects of a modification, unless all of the following are satisfied: (1) the fair value (or calculated value or intrinsic value, if such an alternative
measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative
measurement method is used) of the original award immediately before the original award is modified; (2) the vesting conditions of the modified
award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of
the modified award as an equity instrument or as a liability instrument is the same as the classification of the original award immediately before the
original award is modified. For public entities, the update is effective beginning after December 15, 2017. Early adoption is permitted. Effective
from January 1, 2018, the Group adopted the new guidance, which did not have a material impact on the consolidated financial statements for 2018.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the
Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which eliminates, adds and modifies certain disclosure requirements for
fair value measurements. Under the guidance, public companies will be required to disclose the range and weighted average used to develop
significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for all entities for fiscal years beginning after
December 15, 2019 and for interim periods within those fiscal years, but entities are permitted to early adopt either the entire standard or only the
provisions that eliminate or modify the requirements. The Company does not expect a significant impact on its consolidated financial statements.
3. Risks and Concentration
(a) Credit and Concentration Risks
The Group’s credit risk arises from cash and cash equivalents, restricted cash, short-term investments, prepayments and other current assets,
accounts receivables, yield enhancement products and other long-term investments. 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, short-term investments and other long-
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 for the years ended December 31, 2016, 2017 and 2018.
F-32
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 Group has purchased securities and financial products issued by banks, Alipay, companies and other financial institutions. The Group has
set up a risk evaluation system on the issuers of credit quality, ultimate borrowers of asset management schemes, and conducts collectability
assessment of the financial assets on timely basis. As of December 31, 2018, the Group believes the securities and financial assets are financially
sound based on publicly available information and management’s assessment does not foresee substantial credit risk with respect to these securities
and 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 affect
the remittance.
F-33
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, 2018, the Group acquired 80% of equity interests of an online travel agency to expand Tuniu’s overseas
business network and further enhance the Company’s competitive position. The total purchase price of RMB20,234 including cash consideration of
RMB9,852 and an accrual in the amount of RMB10,382 representing the fair value of contingent consideration to be made based on the
achievement of profit target over the next four years. The fair value of the contingent cash consideration was estimated using a probability-weighted
scenario analysis method. Key assumption included probabilities assigned to each scenario and a discount rate. During the year ended December 31,
2018, the Group paid RMB9,852 cash consideration. The contingent consideration is due in increments annually over the next four years.
The business acquisition was accounted for using purchase accounting. The following is the summary of the fair values of the assets acquired
and liabilities assumed:
Net assets (including cash acquired of RMB6.4million)
Technology
Goodwill
Deferred tax liability
Total consideration
Amount
Estimated useful lives
5,239
4,300
11,770
(1,075)
20,234
9.4years
During the year ended December 31, 2016, the Group acquired 100% of equity interests of an offline travel agency to further expand the
Group’s overseas tourism market and promote the Group’s destination service. The total purchase price of RMB28,077, including cash
consideration of RMB16,507 and an accrual in the amount of RMB11,570 representing the fair value of contingent consideration to be made based
on the achievement of certain revenue and profit target over the next four years. The fair value of the contingent cash consideration was estimated
using a probability-weighted scenario analysis method. Key assumption included probabilities assigned to each scenario and a discount rate. During
the year ended December 31, 2016, the Group paid RMB16,507 of the cash consideration, and made an upward adjustment of the fair value of the
contingent consideration by RMB680. During the year ended December 31, 2017, the Group paid RMB3,600 of the contingent cash consideration,
and made an upward adjustment of the fair value of the contingent consideration by RMB1,030. During the year ended December 31, 2018, the
Group paid RMB3,600 of the contingent cash consideration, and made an upward adjustment of the fair value of the contingent consideration by
RMB730. As of December 31, 2018, the carrying value of total unpaid contingent consideration was RMB6,810, which is expected to be paid in
increments annually over the next two years.
The business acquisition was accounted for using purchase accounting. The following is the summary of the fair values of the assets acquired
and liabilities assumed:
Net assets (including cash acquired of RMB8.3 million)
Trade names
Non-compete agreement
Goodwill
Deferred tax liability
Total consideration
Amount
Estimated useful lives
12,907
2,464
3,676
10,565
(1,535)
28,077
9.5years
6 years
During the year ended December 31, 2015, the Group acquired the 90%, 100%, 75.02% and 80% of equity interests in four offline travel
agencies, respectively. The Group expanded its tours market and improved its capability of direct procurement of travel related products by means
of these acquisitions. The total purchase price of RMB115,498 included cash consideration of RMB100,163 and RMB15,335 representing the fair
value of contingent consideration to be made based on the achievement of certain revenue and profit target over the next three to four years. During
the year ended December 31, 2016, the Group paid RMB7,973 of the cash consideration, and made an downward adjustment of the fair value of the
contingent consideration by RMB1,905. During the year ended December 31, 2017, the Group paid RMB3,200 of the cash consideration, and made
an upward adjustment of the fair value of the contingent consideration by RMB4,542. During the year ended December 31, 2018, the Group paid
RMB3,200 of the cash consideration, and made an downward adjustment of the fair value of the contingent consideration by RMB5,972. As of
December 31, 2018, the total unpaid contingent consideration was RMB19,264, which is expected to be paid in increments annually over the next
one to two years.
The business acquisitions were accounted for using purchase accounting. The following is the summary of the fair values of the assets acquired
and liabilities assumed:
F-34
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
4. Business acquisition - continued
Travel agencies - continued
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
(59,923)
25,100
13,458
39,170
3,013
1,683
133,324
(20,606)
(19,721)
115,498
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 and technology 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, income tax amortization
benefit and customer attrition rates. The Group measured the fair value of non-compete agreements based on incremental discounted cash flow
analyses computed with and without the non-compete terms as described in share purchase agreement and the probability that such competition
exists. The Group measured the fair value of the software under the replacement cost method.
Pro forma results of operations for all of the acquisitions described above have not been presented because they are not material to the
consolidated income statements, either individually or in aggregate.
F-35
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
5. Transaction with JD.com, Inc.
On May 8, 2015, the Company entered into a share subscription agreement with Fabulous Jade Global Limited, an affiliate of JD.com, Inc., and
a Business Cooperation Agreement (“BCA”) with JD. Com, Inc. (“JD”) for a period of five years. Pursuant to these agreements, the Company
issued 65,625,000 Class A ordinary shares for a cash consideration of RMB1,528.2 million (US$250 million) and the business resource contributed
by JD. According to BCA, the business resource includes the exclusive rights to operate the leisure travel channel for both JD’s website and mobile
application and JD's preferred partnership for hotel and air ticket reservation service, the internet traffic support and marketing support for the
leisure travel channel for a period of five years started from August 2015.
The acquisition of BCA is considered as assets acquisition and the intangible assets acquired include the exclusive operation right of leisure
travel channel, preferred partnership of hotel and air ticket reservation service, traffic and marketing supports. The Group estimated the fair value of
exclusive operation right and preferred partnership using a form of the income approach known as excess earning method. The key assumption
includes expected revenue attributable to assets, margin discount rate and the remaining useful life. The Group estimated the fair value of internet
traffic support and marketing support using a form of income approach known as operating cost saving method. Key assumption includes the market
price of the services to be provided, the volume of the services to be provided, discount rate and the remaining useful life. The Group made
estimates and judgments in determining the fair value of the assets with assistance from an independent valuation firm.
The summary of the fair value of acquired intangible assets is as follows:
Exclusive operation right of leisure travel channel
Preferred partnership of hotel and air ticket reservation service
Internet traffic support
Marketing support
Total consideration
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
Receivables in relation to factoring business
Loan receivables
Others
Total
Amount
405,406
1,431
139,358
114,020
660,215
Estimated useful lives
5 years
5 years
5 years
5 years
2017
RMB
680,723
42,234
7,950
81,940
34,284
92,332
939,463
As of December 31,
2018
RMB
716,761
11,984
9,536
324,577
454,953
155,773
1,673,584
US$ (Note 2(d))
104,249
1,743
1,387
47,208
66,170
22,656
243,413
Receivable in relation to factoring business and loan receivable are recorded in connection with the Group’s account receivable factoring
service and cash lending service.
The Group recognized a provision for other current assets of RMB25,622 and RMB32,476 for the years ended December 31, 2016 and 2017,
respectively, and had a net reversal of RMB731 for the year ended December 31, 2018.
The following table summarized the details of the Group’s provision for other current assets:
Balance at beginning of year
Addition
Reversal
Transfer-out
Write-offs
Balance at end of period
For the Years Ended December 31,
2016
RMB
2017
RMB
—
25,622
—
—
—
25,622
25,622
32,476
—
(27,466)
—
30,632
2018
RMB
30,632
6,009
(6,740)
—
—
29,901
US$ (Note 2(d))
4,455
874
(980)
—
—
4,349
F-36
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
7. Long-term investments
The Group’s long-term investments consist of equity investments, held-to-maturity investments and other long-term investments.
Equity investments – equity method
Equity investments – measurement alternative
Equity investments – cost method
Held-to-maturity investments
Other long-term investments
Total
Equity investments
2017
RMB
42,500
—
47,568
—
394,923
484,991
As of December 31,
2018
RMB
42,500
165,253
—
197,469
897,284
1,302,506
US$ (Note 2(d))
6,181
24,035
—
28,721
130,505
189,442
In December 2016, Nanjing Zhongshan Financial Leasing Co., Ltd. (“Zhongshan”) was established and the Group invested RMB42.5 million
for 25% of equity interest in Zhongshan. This investment was accounted for as an equity-method investment due to the significant influence the
Group has over the operating and financial policies of Zhongshan as the Group has one of the five board seats of Zhongshan. Operating results of
Zhongshan were not material in any of the years ended December 31, 2016, 2017 and 2018.
With the adoption of ASU 2016-01, the Group elected a measurement alternative for equity investments that do not have readily determinable
fair values and where the Group does not have the ability to exercise significant influence over operating and financial policies of the entity. During
the year ended December 31, 2018, the Group remeasured certain equity investments based on the information obtained from observable
transactions and recognized gains of RMB12,581 including RMB8,700 for one equity investment, which was recognized on January 1, 2018, the
adoption date of this ASU. In addition, the Group made several equity investments of this kind with the total cost of RMB106,368 and disposed one
equity investment of RMB1,264 in 2018. The carrying value of these equity investments using measurement alternative was RMB165,253 as of
December 31, 2018. Before 2018, cost method was used for these investments with carrying value of RMB47,568 as of December 31, 2017.
Held-to-maturity investments
During 2018, the Group made investments in several corporate bonds issued by listed public companies and time deposits with maturities over
one year. The Group has intention and ability to hold these corporate bonds till maturity. The Group measured these held-to-maturity investments at
amortized cost and the carrying value of such investments was RMB197,469 as of December 31, 2018.
Other long-term investments
The Group also made several investments in financial products with maturities over one year and securities including perpetual bonds and
preferred shares issued by companies. The Group measured other these long-term investments at the fair value and the carrying value was
RMB394,923 and RMB897,284 as of December 31, 2017 and 2018 respectively.
No impairment loss was recognized for long-term investments for the years ended December 31, 2016, 2017 and 2018.
F-37
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
8. Property and equipment, net
The following is a summary of property and equipment, net:
As of December 31,
2018
2017
RMB
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
151,407
87,750
5,495
17,479
1,120
51,911
315,162
(177,854)
137,308
10,970
148,278
RMB
149,634
106,871
5,547
18,334
6,744
127,354
414,484
(241,030)
173,454
13,906
187,360
US$ (Note 2(d))
21,763
15,544
807
2,667
981
18,523
60,285
(35,056)
25,229
2,021
27,250
Depreciation expense for the years ended December 31, 2016, 2017 and 2018 was RMB66,510, RMB65,704 and RMB67,077, respectively.
9. Intangible assets, net
Intangible assets, net, consist of the following:
Travel license
Insurance agency license
Software
Technology
Trade names
Business Cooperation Agreements
Customer relationship
Non-compete agreements
Subtotal
Less: Accumulated amortization
Total
As of December 31,
2018
2017
RMB
30,590
11,711
52,515
—
41,634
660,215
13,458
6,399
816,522
(355,888)
460,634
RMB
30,956
11,711
58,187
4,300
41,634
660,215
13,458
6,399
826,860
(508,975)
317,885
US$ (Note 2(d))
4,502
1,703
8,463
625
6,055
96,025
1,957
931
120,261
(74,027)
46,234
During 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
for this transaction as an asset acquisition and the difference between the cash consideration and net assets of the insurance agency was recorded as
an insurance agency license which is amortized over 20 years on a straight line basis.
F-38
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
9. Intangible assets, net - continued
Amortization expenses for intangible assets were RMB145,063, RMB150,092 and RMB153,087 for the years ended December 31, 2016, 2017
and 2018.
The annual estimated amortization expense for the above intangible assets for the following years is as follows:
Years Ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
10. Land use right, net
Land use right, net, consist of the following:
Land use right
Less: Accumulated amortization
Net book value
Amortization for Intangible Assets
RMB
149,449
96,025
14,310
8,630
6,652
42,819
317,885
US$ (Note 2(d))
21,737
13,966
2,081
1,255
967
6,228
46,234
2017
RMB
As of December 31,
2018
—
—
—
RMB
101,007
(171)
100,836
US$ (Note 2(d))
14,691
(25)
14,666
In December 2018, the Group obtained the certificate for a land use right and started to amortize over the remaining lease period. Amortization
expense for land use right was RMB171 for the year ended December 31, 2018.
11. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2018 were as follows:
Balance at the beginning of year
Increase in goodwill related to acquisitions during the year
Accumulated impairment loss
Balance at the end of year
12. Other non-current assets
Other non-current assets consist of the following:
Prepayment for land use right (note 10)
Deposits
Loans receivables
Others
Balance at the end of year
F-39
2017
RMB
147,639
—
—
147,639
2017
RMB
101,007
26,324
20,694
8,430
156,455
As of December 31,
2018
RMB
147,639
11,770
—
159,409
US$ (Note 2(d))
21,473
1,712
—
23,185
As of December 31,
2018
RMB
—
43,510
31,501
6,028
81,039
US$ (Note 2(d))
—
6,328
4,582
877
11,787
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
13. Accrued expenses and other current liabilities
The following is a summary of accrued expenses and other current liabilities:
Deposits from packaged-tour users
Payable for business acquisition
Accrued liabilities related to customers incentive program
Accrued professional service fees
Accrued advertising expenses
Deposits received from suppliers
Accrued operating expenses
Advanced payment from banks
Discounted bank acceptance notes
Short-term borrowings
Others
Total
2017
RMB
63,499
26,925
2,142
9,878
74,548
70,212
54,834
18,748
—
—
52,904
373,690
As of December 31,
2018
RMB
35,119
25,722
1,395
8,028
63,531
90,853
32,391
15,567
142,000
49,312
69,226
533,144
US$ (Note 2(d))
5,108
3,741
203
1,168
9,240
13,214
4,711
2,264
20,653
7,172
10,070
77,544
Deposits from packaged-tour users represent cash paid to the Group as a deposit for overseas tours, and such amount is refundable upon
completion of the tours.
Advanced payment from banks represent cash received by the Group for promotional and marketing campaigns. Banks participating in these
campaigns would reimburse the Group for tours sold to their credit card holders at a specified discount. Such advanced payment is recognized as
revenues when revenues from the related tour are recognized.
Discounted bank acceptance notes represent cash received from financial institutions by discounting of bank acceptance notes, which are
repayable within one year with interest ranging from 3.7% to 5.8%.
Short-term borrowings represent loans from banks, which are repayable within one year with interest ranging from 5.7% to 7.5%.
14. Income Taxes
The Company is registered in the Cayman Islands. The Company generates substantially all of its income (loss) from its PRC operations for the
years ended December 31, 2016, 2017 and 2018.
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 are subject to EIT at a uniform rate of 25%. The EIT law became effective on January 1,
2008.
F-40
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
14. Income Taxes – continued
The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body”
is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25%
for its global income. The implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where
the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc.,
of a non-PRC company is located.”
The EIT Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company outside of
China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the
received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate
holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman
Islands, where the Company incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and
Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid
by a FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% if the immediate
holding company in Hong Kong owns directly at least 25% of the shares of the FIE and could be recognized as a Beneficial Owner of the dividend
from PRC tax perspective.
Nanjing Tuniu obtained in 2010 its HNTE certificate with a valid period of three years and successfully renewed such certificate in December
2013 and December 2016 for additional three years, respectively. Therefore, Nanjing Tuniu was eligible to enjoy a preferential tax rate of 15% from
2016 to 2018 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly conducts relevant EIT
filing procedures with the relevant tax authority. Nanjing Tuniu expects to obtain an updated HNTE in December 2019 certificate under which it
will be eligible to enjoy a preferential tax rate of 15% from 2019 to 2021 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. Tuniu (Nanjing) Information
Technology Co., Ltd also obtained HNTE certificate in 2017 and is eligible to enjoy a preferential tax rate of 15% from 2017 to 2019 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. Besides, Beijing Tuniu expects to obtain the HNTE certificate in 2019 under which it will be eligible to enjoy a preferential
tax rate of 15% from 2019 to 2021 to the extent it has taxable income under the EIT Law, as long as it maintains the HNTE qualification and duly
conducts relevant EIT filing procedures with the relevant tax authority. Nanjing Tuniu also obtained a software company certificate in 2012.
Pursuant to such certificate, Nanjing Tuniu qualifies for a tax holiday during which it is entitled to an exemption from enterprise income tax for two
years commencing from its first profit-making year of operation and a 50% reduction of enterprise income tax for the following three years. Nanjing
Tuniu entered into the first tax profitable year for the year ended December 31, 2014.
A reconciliation between the effective income tax rate and the PRC statutory income tax rate is as follows:
For Years Ended December 31,
2017
%
2018
%
2016
%
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:
25.0
(23.2)
1.0
(2.0)
(0.7)
0.1
25.0
(17.3)
(4.0)
(5.8)
—
(2.1)
25.0
(50.9)
19.4
(0.1)
6.5
(0.1)
Aggregate amount
Basic net loss per share effect
Diluted net loss per share effect
For the Years Ended December 31,
2016
RMB
2017
RMB
—
—
—
2018
RMB
12,877
—
—
US$ (Note 2(d))
1,873
—
—
—
—
—
F-41
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
14. 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 deductible advertising expenses
Allowance for doubtful accounts
Subtotal
Less: valuation allowance
Total non-current deferred tax assets, net
Non-current deferred tax liabilities:
Recognition of intangible assets arising from business combination
Total non-current deferred tax assets, net
2017
RMB
As of December 31,
2018
RMB
US$ (Note 2(d))
13,828
1,164,433
9,159
11,452
1,198,872
(1,198,872)
—
4,468
1,180,159
9,842
12,957
1,207,426
(1,207,426)
—
650
171,647
1,431
1,885
175,613
(175,613)
—
(21,142)
(21,142)
(19,855)
(19,855)
(2,888)
(2,888)
As of December 31, 2018, the Group had net operating loss carryforwards of RMB1,180,159 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 2019 for the amount of RMB395,272 if not utilized. The remaining net operating loss carryforwards will expire in varying amounts
between 2020 and 2023. Other than the expiration, there are no other limitations or restrictions upon the Group’s ability to use these operating loss
carryforwards. There is no expiration for the advertising expenses carryforwards.
A valuation allowance is provided against deferred tax assets when the Group determines that it is more likely than not that the deferred tax
assets will not be utilized in the future. In making such determination, the Group evaluates a variety of factors including the Group’s operating
history, accumulated deficit, existence of taxable temporary differences and reversal periods.
As of December 31, 2017 and 2018, valuation allowances of RMB1,198,872 and RMB1,207,426 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 at the beginning of the year
Additions
Written-off for expiration of net operating losses
Utilization of previously unrecognized tax losses and deductible
advertising expenses
Balance at the end of the year
F-42
For the Years Ended December 31,
2016
RMB
480,905
596,944
(9,767)
—
1,068,082
2017
RMB
1,068,082
189,090
(16,421)
(41,879)
1,198,872
2018
RMB
1,198,872
128,464
(10,584)
US$ (Note 2(d))
174,369
18,684
(1,539)
(109,326)
1,207,426
(15,901)
175,613
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
15. Redeemable noncontrolling interests
In December 2016, the Group entered into an investment agreement with certain investors (“noncontrolling shareholders”) to establish a
subsidiary. The noncontrolling shareholders contributed RMB90,000 and held 30% equity interest. Pursuant to the investment agreement, the
noncontrolling shareholders have the option to request the Group to redeem their equity interests at an agreed price after three years of the
investment. In April 2018, the Group agreed with one of the noncontrolling shareholders to purchase its 10% equity interest of the subsidiary at the
cost of RMB30,000.
The Group recorded the noncontrolling interests as redeemable noncontrolling interests, outside of permanent equity in the Group’s
consolidated balance sheets in accordance with ASC 480. The Group uses the effective interest method for the changes of redemption value over the
period from the date of issuance to the earliest redemption date of the noncontrolling interests. The accretion, which increases the carrying value of
the redeemable noncontrolling interests, is recorded against additional paid-in capital.
The change in the carrying amount of redeemable noncontrolling interests for the years ended December 31, 2016, 2017 and 2018 is as follows:
Balance as of January 1
Contribution from/(Repurchase of) redeemable noncontrolling
interests
Net income attributable to redeemable noncontrolling interests
Accretion on redeemable noncontrolling interests
Balance as of December 31
F-43
For the Years Ended December 31,
2016
RMB
2017
RMB
—
90,000
(34)
106
90,072
90,072
—
922
5,725
96,719
2018
RMB
96,719
US$ (Note 2(d))
14,067
(30,000)
178
2,422
69,319
(4,363)
26
352
10,082
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
16. 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 are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share on
all matters subject to shareholders’ vote. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder. Class
A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any transfer of Class B ordinary shares by a
holder to any person or entity which is not an affiliate of such holder, such Class B ordinary shares will be automatically and immediately converted
into the equivalent number of Class A ordinary shares.
On May 9, 2014, concurrently with the completion of the Company’s IPO, the Company issued 5,000,000, 1,666,666 and 5,000,000 shares of
Class A ordinary shares at a price per share equal to the IPO price to DCM Hybrid RMB Fund, L.P., the Company’s existing shareholder, Qihoo
360 Technology Co. Ltd. and Ctrip Investment Holding Ltd., respectively.
On December 15, 2014, the Company entered into share subscription agreements with Unicorn Riches Limited, JD.com E-commerce
(Investment) Hong Kong Corporation Limited, Ctrip Investment Holding Ltd. and the respective personal holding companies of the Group’s chief
executive officer and chief operating officer, pursuant to which the Company issued 36,812,868 numbers of Class A ordinary shares for a total
proceeds of RMB905,792 (US$148 million), net of issuance cost of RMB14,279. The transaction was closed on December 31, 2014.
On May 8, 2015, the Company entered into share subscription agreements with Fabulous Jade Global Limited, Unicorn Riches Limited, Ctrip
Investment Holding Ltd., Esta Investments Pte. Ltd., DCM Ventures China Turbo Fund, L.P. and DCM Ventures China Turbo Affiliates Fund, L.P.,
and Sequoia Capital 2010 CV Holdco, Ltd., pursuant to which the Company issued 93,750,000 Class A ordinary shares for the cash consideration of
US$400 million (RMB2,445 million) and certain business resource contributed by JD as part of Business Cooperation Agreement with the
Company. The total consideration was RMB3,104,457, including fair value of acquired Business Cooperation Agreement of RMB660,215(see Note
5), net of issuance cost of RMB1,078. The transaction was closed on May 22, 2015.
On November 20, 2015, the Company entered into a share subscription agreement with HNA Tourism Holdings Group Co., Ltd. (“HNA”),
pursuant to which the Company issued 90,909,091 Class A ordinary shares for a total proceeds of RMB3,279 million (US$500 million). The
transaction was closed on January 21, 2016.
F-44
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
17. Share-based Compensation Expenses
The Company’s 2008 Incentive Compensation Plan (the “2008 Plan”) allows the plan administrator to grant share options and restricted shares
to the Company’s employees, directors, and consultants, up to a maximum of 11,500,000 ordinary shares. In December 2012, the Board of Directors
approved an increase in the number of shares available for issuance under the plan to 18,375,140 ordinary shares. In April 2014 the Company
adopted the 2014 Share Incentive Plan (the “2014 Plan”). The maximum aggregate number of shares which may be issued pursuant to all awards
under the 2014 Plan was initially 5,500,000 ordinary shares as of the date of its approval. The number of shares reserved for future issuances under
the 2014 Plan will be increased automatically if and whenever the ordinary shares reserved under the 2014 Plan account for less than1% of the total
then-issued and outstanding ordinary shares on an as-converted basis, as a result of which increase the ordinary shares reserved under the 2014 Plan
immediately after each such increase shall equal 5% of the then-issued and outstanding ordinary shares on an as-converted basis. In December 2016,
the Board of Directors approved an increase in the number of shares available for issuance under the 2014 Plan to 7,942,675 ordinary shares.
The share options and restricted shares granted under the 2008 plan initially have a contractual term of six years, and grants under the 2014 plan
have a contractual term of ten years. The incentive awards under both 2008 plan and 2014 plan generally 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. As of December 31, 2018, 20,507,371 options and 223,399 restricted shares were
outstanding under the 2008 and 2014 plan.
Share-based compensation expense of RMB92,419, RMB98,675 and RMB68,738 were recognized for the years ended December 31, 2016,
2017 and 2018, respectively.
Share options
The following table summarizes the Company’s option activities:
Outstanding at January 1, 2018
Granted
Exercised
Forfeited
Outstanding at December 31, 2018
Vested and expected to vest at December 31, 2018
Exercisable at December 31, 2018
Weighted
Average
Exercise
Price
US$
Weighted
Average
Remaining
Contractual Life
In Years
Aggregate
Intrinsic
Value
US$’000
2.01
1.67
0.75
2.54
1.81
1.81
1.74
6.36
13,340
6.77
6.68
4.72
6,879
6,856
6,615
Number of
share
options
17,164,617
7,704,003
(886,812)
(3,474,437)
20,507,371
19,619,273
10,496,642
F-45
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
17. Share-based Compensation Expenses - continued
On March 4, 2016, the Company modified the exercise price of 14,478,293 share options granted under 2014 Plan to US$3.09. The incremental
compensation expense of RMB23,197 (US$3,341) was equal to the excess of the fair value of the modified award immediately after the
modification over the fair value of the original award immediately before the modification. For options already vested as of the modification date,
the Company immediately recognized the incremental value as compensation expenses. For options still unvested as of the modification date, the
incremental compensation expenses are recognized over the remaining service period of these options.
On May 31, 2016, the Company modified the exercise price of 7,260,242 share options to US$0.0001 and the number of share options was
reduced to 3,630,121. The incremental compensation expense was insignificant and was recognized over the remaining service period.
On February 15, 2017, the Company extended the contract life of 2,435,709 share options granted under 2008 plan from six years to ten years.
On March 1, 2018, the Company extended the contract life of 200,523 share options granted under 2008 plan from six years to ten years. The
incremental compensation expense for the modifications were insignificant and were recognized immediately since the share options were fully
vested.
The total intrinsic value of options exercised for the years ended December 31, 2016, 2017 and 2018 was RMB26,587, RMB103,082 and
RMB11,026(US$1,604), respectively.
The weighted-average grant date fair value for options granted during the years ended December 31, 2016, 2017 and 2018 was US$1.47,
US$2.66 and US$1.28, respectively, computed using the binomial option pricing model.
The total fair value of share options vested during the years ended December 31, 2016, 2017, and 2018 was RMB67,727, RMB82,814 and
RMB73,997(US$10,762), respectively.
The Company estimated the expected volatility at the date of grant date and each option valuation date based on the annualized standard
deviation of the daily return embedded in historical share prices of comparable companies. Risk free interest rate was estimated based on the yield to
maturity of US treasury bonds denominated in US$ at the option valuation date. The exercise multiple is estimated as the ratio of fair value of
underlying shares over the exercise price as at the time the option is exercised, based on a consideration of research study regarding exercise pattern
based on empirical studies on the actual exercise behavior of employees. The Company has never declared or paid any cash dividends on its capital
stock, and the Company does not anticipate any dividend payments on its ordinary shares in the foreseeable future. Time to maturity is the contract
life of the option, and estimated forfeiture rates are determined based on historical employee turnover rate.
F-46
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
17. 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
Time to maturity (in years)
Expected forfeiture rate (post-vesting)
Fair value of the common share on the date of option grant
2016
2017
2018
55.86%-57.49%
1.85%-2.4%
2.2-2.8
0%
10
0-20%
51.39%-52.4%
2.21%-2.45%
2.2-2.8
0%
10
0%-20%
49.9%
2.97%
2.2-2.8
0%
10
0%-20%
US$2.68-2.97
RMB18.6-20.60
US$1.39-2.92
RMB9.05-18.98
US$1.24-1.35
RMB8.54-9.31
As of December 31, 2018, there was RMB86,902 in total unrecognized compensation expense related to unvested options, which is expected to
be recognized over a weighted-average period of 2.74 years.
Restricted shares
The total intrinsic value of restricted shares vested for the years ended December 31, 2016, 2017 and 2018 were RMB1,777, RMB2,468 and
RMB1,470(US$214), respectively.
The fair value of restricted shares with service conditions is based on the fair market value of the underlying ordinary shares on the date of
grant.
The following table summarizes the Company’s restricted shares activity under the plans:
Outstanding as of January 1, 2018
Granted
Vested
Outstanding as of December 31, 2018
Vested and expected to vest at December 31, 2018
Numbers of
restricted shares
Weighted average
grant date fair value
104,779
210,000
(91,380)
223,399
223,399
3.82
2.23
3.28
2.54
2.54
As of December 31, 2018, there was RMB3,778 in total unrecognized compensation expense related to restricted shares, which is expected to
be recognized over a weighted-average period of 2.69 years.
F-47
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
18. Loss Per Share
The following table sets forth the computation of basic and diluted loss per share for the periods indicated:
Numerator:
Net loss attributable to Tuniu Corporation
Accretion on redeemable noncontrolling interests
Numerator for basic and diluted net loss per share
Denominator:
Weighted average number of ordinary shares outstanding-basic and
diluted
Loss per share-basic and diluted
For the Years Ended December 31,
2016
RMB
2017
RMB
2018
RMB
US$ (Note 2(d))
(2,407,194)
(106)
(2,407,300)
(767,304)
(5,725)
(773,029)
(185,512)
(2,422)
(187,934)
(26,981)
(352)
(27,333)
373,347,855
(6.45)
378,230,039
(2.04)
377,744,381
(0.50)
377,744,381
(0.07)
The Company had securities which could potentially dilute basic loss per share in the future, which were excluded from the computation of
diluted loss per share as their effects would have been anti-dilutive. Such outstanding securities consist of the share options and unvested restricted
shares with the number of 31,733,446, 17,269,396 and 8,316,843, for the years ended December 31, 2016, 2017 and 2018, respectively.
19. Restricted Net Assets
Pursuant to laws applicable to entities incorporated in the PRC, the Group’s subsidiaries and Affiliated Entities in the PRC must make
appropriations from after-tax profit to non-distributable reserve funds. These reserve funds include one or more of the following: (i) a general
reserve, (ii) an enterprise expansion fund and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund
requires an annual appropriation of 10% of after tax profit (as determined under accounting principles generally accepted in the PRC at each year-
end) until the accumulative amount of such reserve fund reaches 50% of a company’s registered capital; the other fund appropriations are at the
subsidiaries’ discretion. These reserve funds can only be used for specific purposes of enterprise expansion and staff bonus and welfare and are not
distributable as cash dividends. In addition, due to restrictions on the distribution of share capital from the Group’s PRC subsidiaries and Affiliated
Entities and also as a result of these entities’ unreserved accumulated losses, total restrictions placed on the distribution of the Group’s PRC
subsidiaries and Affiliated Entities’ net assets was RMB1,721 million, or 51.4% of the Group’s total consolidated net assets as of December 31,
2018.
F-48
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
20. 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
RMB86,830, RMB76,599 and RMB71,379 during the years ended December 31, 2016, 2017 and 2018, respectively, were charged to the
consolidated statements of comprehensive loss when incurred.
As of December 31, 2018, future minimum commitments under non-cancelable agreements were as follows:
Years Ending December 31,
2019
2020
2021
2022
2023 and thereafter
Total
(b) Capital Commitments
RMB
101,947
75,523
33,952
3,712
2,124
217,258
US$ (Note 2(d))
14,828
10,984
4,938
540
309
31,599
As of December 31, 2018, capital commitments relating to leasehold improvement, purchase of equipment and construction of office building
were approximately RMB15,079.
(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.
The Group records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
The Group reviews the need for any such liability on a regular basis. In 2016, the Group received a lawsuit for claim of RMB8.8 million due to the
Group’s delay in payments for office rental and recorded the provision in accordance with ASC 450, Contingencies. During the year ended
December 31, 2018, based on the result of Court’s final judgment that the Group’s loss was limited to RMB1.4 million, which was the deposit paid
by the Group, the remaining provision of RMB7.4 million was reversed accordingly.
(d) Other commitments
Deposits or guarantees are required by the Group’s business partners for air ticketing and tourist attraction tickets. Letters of guarantee are
issued by banks to the Group’s business partners with total amount of RMB212 million and RMB242 million as of December 31, 2017 and 2018,
respectively, which occupies the Group’s revolving credit facilities granted by banks with the total amount of RMB520 million as of December 31,
2018.
F-49
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
21. 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”)
HNA Tourism Holdings Group Co., Ltd. (“HNA”)
Black Fish Group Ltd. (“Black Fish”)
Fullshare Holdings Limited (“Fullshare”)
Relationship with the Group
one board director of the Group
one board director of the Group
two board directors of the Group
founded by one of the former principal shareholders of the Group
a principal shareholder of the Group
On May 25, 2018, Fullshare completed the purchase of 4,104,137 Class A ordinary shares and 6,949,997 Class B ordinary shares from the
Group’s previous principal shareholder Mr.Haifeng Yan. Since then, Haifeng Yan was no longer the Group’s principal shareholder and Black
Fish founded by Mr. Haifeng Yan ceased to be the Group’s related party.
a) Transactions with related parties:
Ctrip purchased 5,000,000 Class A ordinary shares in a private placement concurrent with the Group’s initial public offering, an additional
3,731,034 Class A ordinary shares for a total of US$15 million through a private placement transaction in December 2014 as well as an
additional 3,750,000 Class A ordinary shares for a total of US$20 million through a private placement transaction in May 2015.
The Group sells packaged tours through Ctrip’s online platform and the commission fees to Ctrip were insignificant. Revenues from Ctrip
consist of commission fees for the booking of hotel rooms and air tickets through the Group’s online platform, amounted of RMB54.8 million,
RMB61.5 million and RMB161.7 million (US$23.5 million) for the years ended December 31, 2016, 2017 and 2018, 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 representing the fair value of business resource contributed by
JD, which include 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, internet traffic support and marketing support for the leisure travel channel for a period
of five years starting from August 2015.
On January 21, 2016, the Company issued 90,909,091 Class A ordinary shares to HNA Tourism Holdings Group Co., Ltd., for total
consideration of RMB3,279 million (US$500 million).
In 2017, the Group disposed several subsidiaries to Black Fish with nominal consideration. As of the disposal date, these subsidiaries were
in deficit positions and disposal gain was insignificant in the Group’s consolidated statement of comprehensive income.
Black Fish entered into cooperation agreements with the Group in 2017 for provision of services in relation to the Group’s online lending
services. The amount of service fees charged by Black Fish was RMB155.9 million (US$24.0 million) for the year ended December 31, 2017.
Black Fish also purchased loan receivable assets related to the lending business from the Group at the consideration of RMB140.0 million as
the Group terminated these cooperation agreements and stopped granting loans to individuals in 2017.
HNA agreed to provide the Group with access to its premium airlines and hotels resources at a preferential rate, under fair competition
market rules, and the Group undertook to acquire no less than US$100 million products and services sourced from HNA over the next two
years. The Group purchased RMB250.5 million, RMB394.7 million, RMB588.9 million (US$85.7 million) air tickets from HNA for the year
ended December 31, 2016, 2017 and 2018, respectively.
During the year ended December 31, 2018, the Group provided account receivables factoring service to an affiliate of HNA Tourism
amounting to RMB500 million (US$72.7 million) with a repayment term of 12 months.
During the year ended December 31, 2018, Fullshare made several prepayments to the Group for travelling products, which was RMB1.6
million (US$0.2 million) in 2018.
F-50
TUNIU CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except for share and per share data, or otherwise noted)
21. Related party transactions and balances - continued
b) Balances with related parties:
Current:
Amounts due from Ctrip
Amounts due from JD
Amounts due from HNA
Amounts due from Black Fish
Total
Current:
Amounts due to Ctrip
Amounts due to JD
Amounts due to Fullshare
Total
2017
RMB
As of December 31,
2018
RMB
US$ (Note 2(d))
16,128
10,942
143,084
1,177
171,331
86,923
—
—
86,923
11,091
50,336
635,093
—
696,520
73,229
2,350
1,580
77,159
1,613
7,321
92,371
—
101,305
10,650
342
230
11,222
F-51
FINANCIAL STATEMENT 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 and Affiliated Entities
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
Investment deficit in subsidiaries and Affiliated Entities
Total non-current liabilities
Total liabilities
Equity
Ordinary shares (US$0.0001 par value; 1,000,000,000 shares (including 780,000,000
Class A shares, 120,000,000 Class B shares and 100,000,000 shares to be
designated by the Board of Directors) authorized as of December 31, 2017 and
2018; 388,918,015 shares (including 371,544,515 Class A shares and 17,373,500
Class B shares) and 389,331,544 shares (including 371,958,044 Class A shares
and 17,373,500 Class B shares) issued and outstanding as of December 31, 2017
and 2018, respectively)
Less: Treasury stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total Tuniu Corporation shareholders’ equity
Total liabilities and equity
F-52
2017
RMB
As of December 31,
2018
RMB
US$ (Note 2(d))
293
7,035,131
570
7,035,994
343,583
7,379,577
8,232
8,232
3,776,234
3,776,234
3,784,466
250
7,116,514
226
7,116,990
211,540
7,328,530
10,989
10,989
3,967,178
3,967,178
3,978,167
36
1,035,054
33
1,035,123
30,767
1,065,890
1,598
1,598
577,002
577,002
578,600
248
(185,419)
9,013,793
272,386
(5,505,897)
3,595,111
7,379,577
249
(304,535)
9,061,979
284,079
(5,691,409)
3,350,363
7,328,530
36
(44,293)
1,318,010
41,318
(827,781)
487,290
1,065,890
FINANCIAL STATEMENT 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
General and administrative
Share of loss of subsidiaries and affiliated entities
Total operating expenses
Loss from operations
Other income/(expenses)
Interest income
Foreign exchange losses, net
Other income, net
Loss before income tax expense
Net loss
Accretion on redeemable noncontrolling interests
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,
2016
RMB
2017
RMB
2018
RMB
US$ (Note 2(d))
(11,657)
(2,230,637)
(2,242,294)
(2,242,294)
1,418
(167,405)
1,087
(2,407,194)
(2,407,194)
(106)
(2,407,300)
(6,715)
(761,841)
(768,556)
(768,556)
6
(12)
1,258
(767,304)
(767,304)
(5,725)
(773,029)
(3,147)
(183,670)
(186,817)
(186,817)
—
—
1,305
(185,512)
(185,512)
(2,422)
(187,934)
(458)
(26,714)
(27,172)
(27,172)
—
—
191
(26,981)
(26,981)
(352)
(27,333)
(2,407,194)
(767,304)
(185,512)
(26,981)
233,900
(2,173,294)
(128,539)
(895,843)
11,693
(173,819)
1,701
(25,280)
F-53
FINANCIAL STATEMENT SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(All amounts in thousands, except for share and per share data, or otherwise noted)
For the Years Ended December 31,
Cash (used in)/provided by operating activities
Cash (used in)/provided by investing activities
Cash provided by/(used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of year
Cash, cash equivalents and restricted cash at the end of year
Supplemental disclosure of non-cash investing and financing
activities
2016
RMB
(661,029)
(3,972,014)
3,264,610
281,764
(1,086,669)
1,090,097
3,428
2017
RMB
(5,507)
402,418
(98,805)
(301,241)
(3,135)
3,428
293
Receivables related to exercise of stock option
(163)
(385)
F-54
2018
RMB
1,266
133,189
(134,485)
US$ (Note 2(d))
184
19,372
(19,560)
(13)
(43)
293
250
(23)
(3)
(7)
43
36
(3)
FINANCIAL STATEMENT SCHEDULE I
TUNIU CORPORATION
CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Note to Financial Statement 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 Affiliated Entities. Such
investments in subsidiaries and Affiliated Entities are presented as investment deficit in subsidiaries and Affiliated Entities and the loss of the
subsidiaries and Affiliated Entities is presented as share of loss of subsidiaries and Affiliated Entities.
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 to the consolidated financial
statements contain information relating to the operations of the parent company and, as such, this schedule should be read in conjunction with the
notes to the accompanying consolidated financial statements.
As of December 31, 2018, the parent 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-55
List of Principal Subsidiaries, Consolidated Affiliated Entity and its Principal Subsidiaries
EXHIBIT 8.1
Subsidiaries
Tuniu (HK) Limited
Tuniu (Nanjing) Information Technology Co., Ltd.
Beijing Tuniu Technology Co., Ltd.
Xiamen Suiwang International Travel Service Co., Ltd.
Tianjin Tuniu International Travel Service Co., Ltd.
Consolidated Affiliated Entity and its Subsidiaries
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.
Beijing Global Tour International Travel Service Co., Ltd.
Tuniu Insurance Brokers Co., Ltd.
Place of Incorporation
Hong Kong
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 4, 2019
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, Maria Yi Xin, 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 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 4, 2019
By: /s/ Maria Yi Xin
Name: Maria Yi Xin
Title: Chief Financial Officer
Exhibit 13.1
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Tuniu Corporation (the “Company”) on Form 20-F for the year ended December 31, 2018 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 4, 2019
By: /s/ Dunde Yu
Name: Dunde Yu
Title: Chief Executive Officer
Exhibit 13.2
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Tuniu Corporation (the “Company”) on Form 20-F for the year ended December 31, 2018 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Maria Yi Xin, 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 4, 2019
By: /s/ Maria Yi Xin
Name: Maria Yi Xin
Title: Chief Financial Officer
EXHIBIT 15.1
Consent of Independent Registered Public Accounting Firm
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 4, 2019 relating to the consolidated financial statements, financial statement schedule I, and the effectiveness of internal
control over financial reporting, which appears in this Form 20-F.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
April 4, 2019
EXHIBIT 15.2
Office:
Mobile:
Email:
+852 2801 6066
+852 9718 8740
rthorp@tta.lawyer
Tuniu Building no. 699-32
Xuanwudadao, Xuanwu District
Nanjing, Jiangsu Province 210042
People’s Republic of China
Dear Sirs
Re: Tuniu Corporation
4 April 2019
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 2018 ("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
EXHIBIT 15.3
FANGDA PARTNERS
上海 Shanghai (cid:120)(cid:3)北京 Beijing (cid:120)(cid:3)深圳 Shenzhen (cid:120)(cid:3)广州 Guangzhou (cid:120)(cid:3)香港 Hong Kong
http://www.fangdalaw.com
电 子 邮 件 Email: email@fangdalaw.com
电 话 Tel.: 861057695600
传 真 Fax: 861057695788
文 号 Ref.: 19GC0021
Consent of Fangda Partners
April 4, 2019
中 国 北 京 市 朝 阳 区 光 华 路 1 号
嘉 里 中 心 北 楼 27 层
邮 政 编 码 : 100020
27/F, North Tower, Kerry Center
No. 1, Guanghua Road, Chaoyang District
Beijing 10020, PRC
Tuniu Corporation
Tuniu Building No. 699-32
Xuanwudadao, Xuanwu District
Nanjing, Jiangsu Province 210042
The People’s Republic of China
Dear Sirs:
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, 2018 (the “Annual Report”), which will be filed with the Securities
and Exchange Commission (the “SEC”) in the month of April 2019. 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