| Summary of Significant Accounting Policies | 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of accounting
The accompanying consolidated financial statements have been
prepared in accordance with U.S. Generally Accepted Accounting
Principles (“U.S. GAAP”).
The Group adopted ASU No. 2016-18, Statement
of Cash Flows (Topic 320): Restricted
Cash, beginning-of-period end-of-period
The following table provides a reconciliation of the amount of
cash, cash equivalents, and restricted cash reported within the
consolidated balance sheets to the total of the same such amounts
shown in the consolidated statements of cash flows:
December 31,
2016 2017 2018
RMB RMB RMB
Amounts shown in Consolidated
Balance Sheets:
Cash and cash equivalents 3,293,911 911,588 211,970
Restricted cash 9,319
— 5,000
Total cash, cash equivalents and restricted cash as shown in
Consolidated Statements of Cash Flows 3,303,230 911,588 216,970
(b)
Principles of Consolidation
The consolidated financial statements include the financial
statements of the Company, its subsidiaries, and the VIEs for which
the Company or subsidiaries of the Company are the primary
beneficiaries. All significant inter-company transactions and
balances between the Company, its subsidiaries, and the VIEs are
eliminated upon consolidation. Results of acquired subsidiaries and
VIEs are consolidated from the date on which control is transferred
to the Company.
(c)
Use of Estimates
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the year. Areas where
management uses subjective judgment include, but are not limited
to, estimating the useful lives of long-lived assets and intangible
assets, identification of performance obligations, standalone
selling price for each performance obligation and estimation of
variable consideration represented by sales rebates, etc. related
to revenue transactions, assessing the initial valuation of the
assets acquired and liabilities assumed in a business combination
and the subsequent impairment assessment of financial assets,
long-lived assets, intangible assets, goodwill,
other non-current
(d)
Foreign Currency
The functional currency of the Company, its Cayman subsidiaries and
Cheerbright, is the United States dollar (“US$”),
whereas the functional currency of Hong Kong subsidiaries is the
Hong Kong dollar (“HK$”), and the functional currency
of the PRC subsidiaries and VIEs is the Chinese Renminbi
(“RMB”) as determined based on the criteria of ASC
830 , Foreign Currency Matters re-measured re-measured
Assets and liabilities of the Company, its Cayman subsidiaries,
Cheerbright and Hong Kong subsidiaries are translated into RMB at
fiscal year-end
(e)
Convenience Translation
Amounts in United States dollars (“US$”) are presented
for the convenience of the reader and are translated at the noon
buying rate of US$1.00 to RMB6.8755 on December 31, 2018 in
the City of New York for cable transfers of RMB as certified for
customs purposes by the Federal Reserve Bank of New York. No
representation is made that the RMB amounts could have been, or
could be, converted into US$ at such rate.
(f)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits,
time deposits and money market funds placed with banks or other
financial institutions which are unrestricted as to withdrawal and
use and have original maturities of three months or less.
(g)
Short-term Investments
Short-term investments represent bank deposits, adjustable-rate
financial products with original maturities of greater than 3
months but less than 1 year and money market funds that are
measured at fair value. In accordance with ASC 825 , Financial
Instruments
(h)
Restricted Cash
Restricted cash represents cash deposits in a regulatory escrow
account related to insurance brokerage services.
(i)
Fair Value Measurements of Financial
Instruments
Financial instruments of the Group primarily comprise of cash and
cash equivalents, restricted cash, short-term investments, accounts
receivable, amounts due from related parties, prepaid expenses and
other current assets, other non-current non-current
ASC topic 820 (“ASC 820”), Fair
Value Measurements and Disclosures
Level 1 – Observable inputs that reflect quoted prices
(unadjusted) for identical assets or liabilities in active
markets
Level 2 – Include other inputs that are directly or
indirectly observable in the marketplace
Level 3 – Unobservable inputs which are supported by
little or no market activity
ASC 820 describes three main approaches to measuring the fair value
of assets and liabilities: (1) market approach;
(2) income approach and (3) cost approach. The market
approach uses prices and other relevant information generated from
market transactions involving identical or comparable assets or
liabilities. The income approach uses valuation techniques to
convert future amounts to a single present value amount. The
measurement is based on the value indicated by current market
expectations about those future amounts. The cost approach is based
on the amount that would currently be required to replace an
asset.
(j)
Property and Equipment
Property and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the
assets, as follows:
Category
Estimated useful life
Electronic equipment 3 – 5 years
Office equipment 3 – 5 years
Motor vehicles 4 – 5 years
Software 3 – 5 years
Leasehold improvements
Shorter of lease term or the estimated useful lives of
the assets
Repair and maintenance costs are charged to expense as incurred,
whereas the costs of betterments that extend the useful life of
property and equipment are capitalized as additions to the related
assets. Retirements, sale and disposals of assets are recorded by
removing the cost and accumulated depreciation with any resulting
gain or loss reflected in the consolidated statements of
comprehensive income.
(k)
Intangible Assets
Intangible assets are carried at cost less accumulated amortization
and any recorded impairment. Intangible assets acquired in a
business combination were recognized initially at fair value at the
date of acquisition. Intangible assets acquired in asset
acquisitions are measured based on the cost to the acquiring
entity, which generally includes transaction costs. Intangible
assets with finite useful lives are amortized using a straight-line
method of amortization that reflects the estimated pattern in which
the economic benefits of the intangible asset are to be consumed.
The estimated useful life for the intangible assets is as
follows:
Category
Estimated useful life
Trademark 3-15
Customer relationship 5 years
Websites 4 years
Domain names 4-10
Licensing agreements 1.75 years
Insurance brokerage license 4 years
(l)
Long-term Investments
The Company’s long-term investments consist of equity method
investments. Investments in entities in which the Company can
exercise significant influence and holds an investment in voting
common stock or in-substance Investments-Equity Method and
Joint Ventures
(m)
Goodwill
Goodwill represents the excess of the purchase price over the
amounts assigned to the fair value of the assets acquired and the
liabilities assumed of an acquired business. The Group’s
goodwill at December 31, 2017 and 2018 were related to its
acquisition of Cheerbright, China Topside and Norstar. In
accordance with ASC 350, Goodwill and Other
Intangible Assets
Goodwill is tested for impairment at the reporting unit level on an
annual basis (December 31 for the Company) and between annual tests
if an event occurs or circumstances change that
would more-likely-than-not
Management has determined that the Group represents the lowest
level within the entity at which goodwill is monitored for internal
management purposes. Management evaluated the recoverability of
goodwill by performing a qualitative assessment before using
a two-step more-likely-than-not two-step
If the Group reorganizes its reporting structure in a manner that
changes the composition of one or more of its reporting units,
goodwill is reassigned based on the relative fair value of each of
the affected reporting units.
(n)
Other non-current
Other non-current
A convertible bond that is not within the scope of ASC 320
“ Investments - debt and equity securities Receivables Derivatives
and Hedging
According to ASC 310-10-35,
(o)
Impairment of Long-Lived Assets and
Intangibles
The Group evaluates its long-lived assets or asset group, including
intangible assets with finite lives, for impairment whenever events
or changes in circumstances (such as a significant adverse change
to market conditions that will impact the future use of the assets)
indicate that the carrying amount of an asset or a group of
long-lived assets may not be recoverable. When these events occur,
the Group evaluates impairment by comparing the carrying amount of
the assets to future undiscounted net cash flows expected to result
from the use of the assets and their eventual disposition. If the
sum of the expected undiscounted cash flow is less than the
carrying amount of the assets, the Group would recognize an
impairment loss based on the excess of the carrying amount of the
asset group over its fair value. No impairment charge was recorded
for any of the years presented.
(p)
Revenue Recognition
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606) 2014-09”),
The following table illustrates the effect of the adoption of ASC
606 by presenting a comparison of selected line items from the
Group’s consolidated statement of comprehensive income for
the year ended December 31, 2018:
For the year ended December 31,
2018
Under Previous Effects of new Under New
Net revenues
Media services 3,718,748 (210,494 ) 3,508,254
Leads generation services 3,274,619 (403,623 ) 2,870,996
Online marketplace and others 919,368 (65,467 ) 853,901
Total net revenues 7,912,735 (679,584 ) 7,233,151
Cost of revenues (1,210,545 ) 390,257 (820,288 )
Gross profit 6,702,190 (289,327 ) 6,412,863
Other income, net 52,064 289,327 341,391
Operating profit 2,868,925 2,868,925
Net income attributable to Autohome Inc. 2,871,015 2,871,015
The Group’s revenues are derived from media services, leads
generation services and online marketplace and others. Under Topic
606, revenues are recognized when control of the promised goods or
services is transferred to the Group’s customers, in an
amount that reflects the consideration the Group expects to be
entitled to in exchange for those goods or services. The
recognition of revenue involves certain management judgments
including identification of performance obligations, standalone
selling price for each performance obligation, estimation of
variable consideration represented by sales rebates, etc. The Group
provides rebates to agency companies based on cumulative annual
advertising and service volume, which are accounted for as variable
consideration. The Group estimate its obligations under such
agreements applying the expected value or most likely estimate,
based on an evaluation of the likelihood of the agency
companies’ achievement of the advertising and service volume
targets and evaluation of the agency companies’ purchase
trends and history. A refund liability (included in accrued
expenses and other payables) is recognized for expected sales
rebates payable to agency companies in relation to advertising
services provided until the end of the reporting period. The Group
recognizes revenue for the amount of fees it receives from its
clients, after deducting these sales rebates, and net of VAT
collected from customers. The Group believes that there will not be
significant changes to its estimates of variable consideration and
updates the estimate at each reporting period as actual utilization
becomes available.
The Group determines revenue recognition through the following
steps
•
identification of the contract, or contracts, with a
customer;
•
identification of the performance obligations in the
contract;
•
determination of the transaction price;
•
allocation of the transaction price to the performance
obligations in the contract; and
•
recognition of revenue when, or as, the Group
satisfies a performance obligation
Media services
Media services revenues mainly include revenues from automaker
advertising services and regional marketing campaigns conducted by
certain automobile brands’ regional offices. The majority of
online advertising service contracts involve multiple deliverables
or performance obligations presented on PC and mobile platforms and
under different formats such as banner advertisements, links and
logos, other media insertions and promotional activities that are
delivered over different periods of time. Revenue is allocated
among these different deliverables based on their relative
standalone selling prices. The Group generally determines the
standalone selling price as the observable price of a product or
service charged to customers when sold on a standalone basis.
Advertising services are primarily delivered based on cost per day
(“CPD”) pricing model. For CPD advertising
arrangements, revenue is recognized when the corresponding
advertisements are published over the stated display period. For
certain marketing campaigns and promotional activities services,
revenue is recognized when the corresponding services have been
rendered.
Leads generation services
Leads generation services primarily include revenues from
(i) dealer subscription services, (ii) advertising
services sold to individual dealer advertisers, and (iii) used
car listing services and other value-added services. Under the
dealer subscription services, the Group makes available throughout
the subscription period a webpage linked to its websites and mobile
applications where the dealers can publish information such as the
pricing of their products, locations and addresses and other
related information. Usually, advanced payment is made for the
dealer subscription services and revenue is recognized over time on
a straight line basis as services are constantly provided over the
subscription period. For the advertising services sold to
individual dealers, revenue is recognized when the advertising is
published over the stated display period. The used car listing
services primarily include listing and display of used vehicles,
generation of sales leads, etc, through the Group’s platform.
The used car platform acts as a user interface that allows
potential used car buyers to identify listings that meet their
specific requirements and contact the seller. The service fee is
charged per the number of displayed days, or quantity of sales
leads delivered. Revenue is recognized respectively at a point in
time upon the display of vehicles or the delivery of sales
leads.
Online marketplace and others
Online marketplace and others revenue primarily consist of revenues
related to new car and used car marketplace, auto-financing
business, data products and others. For the new car and used car
marketplace, and auto-financing business, the Group provides
platform-based services including facilitation of transactions,
transaction-oriented marketing solutions, generation of sales leads
and facilitation of transactions as an insurance brokerage service
provider. For the new car marketplace, the Group also acts as the
platform for users to review automotive-related information,
purchase coupons offered by automakers for discounts and make
purchases to complete the transaction. For the used car platform,
the Group acts as a C2B2C transaction system that facilitates the
used car transaction between the sellers and buyers and charge the
service fee per each sale. For the auto-financing business, the
Group provides a platform which serves as a bridge to match users
and automobile sellers that have auto financing needs with the
Group’s cooperative financial institutions that offer a
variety of products covering merchant loans, consumer loans, leases
and insurance services. The auto-financing service fee is charged
on a per sale or lead basis. The service fee is recognized at a
point in time when the relevant information is displayed, marketing
solution package is delivered, when the sales leads are delivered
or upon the successful facilitation of transaction. For the data
products, the Group provides data analysis reports and data-driven
intelligent sales and marketing tools for the automakers and
dealers and recognizes revenue at a point in time upon the delivery
of reports or over the period of the consumption or utilization of
marketing tools by the automakers and dealers.
Contract Balances
Payment terms and conditions vary by contract and service types.
However, generally speaking, excluding dealer subscription and used
car listing, the rest of service contracts usually require payment
within several months of service delivery. The term between
billings and when payment is due is not significant and the Company
generally does not provide significant financing terms. Timing of
revenue recognition may differ from the timing of invoicing to
customers. Accounts receivable represent amounts invoiced and
revenue recognized prior to invoicing, when the Group has satisfied
its performance obligations and has the unconditional right to
payment. Non-refundable
Accounts receivable are carried at net realizable value. An
allowance for doubtful accounts is recorded in the period when a
loss is probable based on an assessment of specific evidence
indicating troubled collection, historical experience, accounts
aging and other factors. An accounts receivable balance is written
off after all collection effort has ceased.
Practical Expedients and Exemptions
The Company has elected to use the practical expedient to not
disclose the remaining performance obligations for contracts that
have durations of one year or less. The Company does not have
significant remaining performance obligations in excess of one
year. For the remaining performance obligations as of
December 31, 2018, most of them are to be recognized within a
year.
The revenue standard requires the Company to recognize an asset for
the incremental costs of obtaining a contract with a customer if
the benefit of those costs is expected to be longer than one year.
The Group has determined that sales commission for sales personnel
meet the requirements of capitalization. However, the Group applies
a practical expedient to expense these costs as incurred for costs
to obtain a contract with a customer when the amortization period
would have been one year or less.
(q)
Cost of Revenues
Cost of revenues primarily consist of bandwidth and internet data
center fees, depreciation of the Group’s long-lived assets,
amortization of acquired intangible assets, tax surcharges,
content-related costs, cost of sales and write-downs of inventories
and prepayment for vehicle purchase cost. Content-related costs
primarily comprise of salaries and benefits for employees directly
involved in revenue generation activities, cost related to content
generation and acquisition and execution cost and other overhead
expenses directly attributable to the provision of the media
services, leads generation services and online marketplace and
others. Cost of sales include vehicle purchase cost and other
directly attributable costs. Rebates relating to new vehicles
purchased and sold during the reporting period are recorded as a
reduction to cost of revenues.
(r)
Advertising Expenditures
Advertising expenditures which amounted to RMB756,073, RMB767,528
and RMB1,047,160 (US$152,303) for the years ended December 31,
2016, 2017 and 2018, respectively, are expensed as incurred and are
included in sales and marketing expenses.
(s)
Product Development Expenses
Product development expenses consist primarily of employee costs
related to personnel involved in the development and enhancement of
the Group’s service offerings on its websites and mobile
applications, and expenditure for research and development
activities. The Group recognizes these costs as expenses when
incurred, unless they result in significant additional
functionality or are related to application development stage, in
which case they are capitalized.
(t)
Leases
Leases are classified at the inception date as either a capital
lease or an operating lease. The Group assesses a lease to be a
capital lease if any of the following conditions exist: a)
ownership is transferred to the lessee by the end of the lease
term, b) there is a bargain purchase option, c) the lease term is
at least 75% of the property’s estimated remaining economic
life or d) the present value of the minimum lease payments at the
beginning of the lease term is 90% or more of the fair value of the
leased property to the lessor at the inception date. A capital
lease is accounted for as if there was an acquisition of an asset
and an incurrence of an obligation at the inception of the lease.
The Group has no capital leases for the years presented.
All other leases are accounted for as operating leases wherein
rental payments are expensed on a straight-line basis over the
periods of their respective lease terms. The Group leases office
space under operating lease agreements. Certain of the lease
agreements contain rent holidays. Rent holidays are considered in
determining the straight-line rental expense to be recorded over
the lease term. The lease term begins on the date of initial
possession of the lease property for purposes of recognizing lease
expense on straight-line basis over the term of the lease.
(u)
Income Taxes
The Group accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting
and tax bases of assets and liabilities using enacted tax rates
that will be in effect in the period in which the differences are
expected to reverse. The Group records a valuation allowance
against deferred tax assets if, based on the weight of available
evidence, it is more-likely-than-not
The Group applies ASC 740, Accounting for
Income Taxes
The Group’s estimated liability for unrecognized tax benefits
and the related interest and penalties are periodically assessed
for adequacy and may be affected by changing interpretations of
laws, rulings by tax authorities, changes and/or developments with
respect to tax audits, and expiration of the statute of
limitations. The actual benefits ultimately realized may differ
from the Group’s estimates. As each audit is concluded,
adjustments, if any, are recorded in the Company’s
consolidated financial statements. Additionally, in future periods,
changes in facts and circumstances, and new information may require
the Group to adjust the recognition and measurement estimates with
regard to individual tax positions. Changes in recognition and
measurement estimates are recognized in the period in which they
occur.
(v)
Earnings Per Share
Earnings per share are calculated in accordance with
ASC 260-10, Earnings
per Share: Overall. two-class
Diluted earnings per ordinary share reflects the potential dilution
that could occur if securities to issue ordinary shares were
exercised. The dilutive effect of outstanding share-based awards is
reflected in the diluted earnings per share by application of the
treasury stock method.
(w)
Comprehensive Income
Comprehensive income is defined to include all changes in
shareholders’ equity except those resulting from investments
by owners and distributions to owners. Among other disclosures,
ASC 220-10, Comprehensive
Income: Overall
(x)
Noncontrolling interests
Noncontrolling interests are recognized to reflect the portion of
the equity of majority-owned subsidiary which is not attributable,
directly or indirectly, to the controlling
shareholder. Non-controlling
(y)
Segment Reporting
In accordance with ASC 280-10, Segment
Reporting: Overall
(z)
Employee Benefits
The full-time employees of the Company’s PRC subsidiaries and
VIEs are entitled to staff welfare benefits including medical care,
housing fund, pension benefits and unemployment insurance, which
are governmental mandated defined contribution plans. These
entities are required to accrue for these benefits based on certain
percentages of the employees’ respective salaries, subject to
certain ceilings, in accordance with the relevant PRC regulations,
and make cash contributions to the state-sponsored plans out of the
amounts accrued. The total expenses for the employee benefits plans
were RMB214,596, RMB270,794 and RMB319,491 (US$46,468) for the
years ended December 31, 2016, 2017 and 2018,
respectively.
(aa)
Share-based Compensation
Share-based awards granted to employees are accounted for under ASC
718, Compensation—Stock
Compensation
Forfeiture rates are estimated based on historical and future
expectations of employee turnover rates and are adjusted to reflect
future changes in circumstances and facts, if any. Share-based
compensation expense is recorded net of estimated forfeitures such
that expense is recorded only for those share-based awards that are
expected to vest. To the extent the Company revises these estimates
in the future, the share-based payments could be materially
impacted in the period of revision, as well as in following
periods. The Company, with the assistance of an independent
third-party valuation firm, determined the fair value of the stock
options granted to employees. The binomial option pricing model was
applied in determining the estimated fair value of the options
granted to employees. Subsequent to the IPO, fair value of the
ordinary shares is the price of the Company’s publicly traded
shares.
The Company accounts for a change in any of the terms or conditions
of share-based awards as a modification in accordance with ASC
subtopic 718-20, Compensation-Stock
Compensation: Awards Classified as Equity
(bb)
Other income, net
Commencing in 2018 with the adoption of the new revenue accounting
standard, VAT refunds are presented as a component of other income,
net. For Beijing Prbrownies Software Co., Ltd. and Chengdu
Prbrownies Software Co., Ltd., they are subject to 17% VAT (or 16%
VAT beginning from May 1, 2018) for the dealer subscription
services and other services, which were sold in the form of
software products. Since November 2014 and December 2016,
respectively, Beijing Prbrownies Software Co., Ltd. and Chengdu
Prbrownies Software Co., Ltd. are entitled to an immediate 14% VAT
(or 13% beginning from May 1, 2018) refund, which is a refund
in excess of 3% VAT on the total VAT payable, after their
registration of software products with relevant authority and
obtaining the refund approval from local tax bureau. Other income,
net also includes government grants, which primarily represent
subsidies and tax refunds for operating a business in certain
jurisdictions and fulfilment of specified tax payment obligations.
These grants are not subject to any specific requirements and are
recorded when received. For the years ended December 31, 2016, 2017
and 2018, RMB12,576, RMB25,657 and RMB45,190 (US$6,573) of
government grants were recorded as other income, net. The prior
figures have been reclassified to conform to current year
presentation to facilitate comparison.
(cc)
Recent Accounting Pronouncements
In February 2016, the FASB issued
ASU No. 2016-02, Leases 2016-02”). right-of-use right-of-use
In June 2016, the FASB issued ASU No. 2016-13 Financial
Instruments—Credit
Losses 2016-13”).
In January 2017, the FASB issued ASU No. 2017-04, Simplifying
the Test for Goodwill Impairmen 2017-04”). 2017-04 2017-04
(dd)
Concentration of Risk
Credit risk
Financial instruments that potentially subject the Group to
significant concentrations of credit risk consist primarily of cash
and cash equivalents, restricted cash, short-term investments and
accounts receivable. As of December 31, 2017 and 2018, cash
and cash equivalents, restricted cash and short-term investments
altogether amounting to RMB8,154,224 and RMB10,066,458
(US$1,464,106), respectively, were deposited with various major
reputable financial institutions located in the PRC and
international financial institutions outside of the PRC. Management
believes that these financial institutions are of high credit
quality and continually monitors the creditworthiness of these
financial institutions. Historically, deposits in Chinese banks are
secure due to the state policy on protecting depositors’
interests. However, China promulgated a new Bankruptcy Law in
August 2006 that came into effect on June 1, 2007, which
contains a separate article expressly stating that the State
Council may promulgate implementation measures for the bankruptcy
of Chinese banks based on the Bankruptcy Law. Under the new
Bankruptcy Law, a Chinese bank may go into bankruptcy. In the event
of bankruptcy of one of the banks which holds the Group’s
deposits, it is unlikely to claim its deposits back in full since
it is unlikely to be classified as a secured creditor based on PRC
laws. The Group continues to monitor the financial strength of
these financial institutions.
Accounts receivable are typically unsecured and derived from
revenue earned from customers in the PRC, which are exposed to
credit risk. The risk is mitigated by the Group’s assessment
of its customers’ creditworthiness and its ongoing monitoring
process of outstanding balances. The Group maintains reserves for
estimated credit losses and these losses have generally been within
expectations. There were one customer and three customers that
individually represented greater than 10% of the total accounts
receivable as of December 31, 2017 and 2018.
Business, customer, political, social and economic risks
The Group participates in a dynamic high technology industry and
believes that changes in any of the following areas could have a
material adverse effect on the Group’s future financial
position, results of operations or cash flows; changes in the
overall demand for services and products; changes in business
offerings; competitive pressures due to new entrants; acceptance of
the Internet as an effective marketing platform by China’s
automotive industry; changes in certain strategic relationships or
customer relationships; growth in China’s automotive
industry, regulatory considerations; and risks associated with the
Group’s ability to attract and retain employees necessary to
support its growth.
There were no customers that individually represented greater than
10% of the total net revenues for the years ended December 31,
2016, 2017 and 2018, respectively.
Currency convertibility risk
The Group transacts substantially all its business in RMB, which is
not freely convertible into foreign currencies. According to the
relevant regulations in the PRC, all foreign exchange transactions
are required to take place either through the People’s Bank
of China (“PBOC”) or other banks authorized to buy and
sell foreign currencies at the exchange rates quoted by the PBOC.
Approval of foreign currency payments by the PBOC or other
institutions requires submitting a payment application form
together with suppliers’ invoices, shipping documents and
signed contracts.
Most of the cash and cash equivalents and short-term investments
held by PRC subsidiaries and the VIEs are denominated in RMB, while
a portion of cash and cash equivalents and short-term investments
held by PRC subsidiaries and the VIEs are denominated in US$. Cash
distributed outside of the PRC by PRC subsidiaries and the VIEs are
subject to PRC dividend withholding tax.
Foreign Currency exchange rate risk
Since July 21, 2005, the RMB was permitted to fluctuate within
a narrow and managed band against a basket of certain foreign
currencies. There was depreciation of 6.7%, appreciation of 6.7%,
depreciation of 5.4% for the years ended December 31, 2016,
2017 and 2018, respectively. Any significant appreciation or
depreciation of the RMB may materially and adversely affect the
Group’s earnings and financial position, and the value of,
and any dividends payable on, the Company’s ADSs in U.S.
dollars. For example, to the extent that the Group need to convert
U.S. dollars it received from its initial public offering into RMB
to pay its operating expenses, appreciation of the RMB against the
U.S. dollar would have an adverse effect on the RMB amou |
