NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Renminbi (RMB)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
eLong, Inc. (the "Company," and
with its subsidiaries and consolidated variable interest entities (the "VIEs"), collectively, the "Group"),
is principally engaged in the provision of travel services, including accommodation reservation services, transportation ticketing,
and to a lesser extent, internet-related advertising in the People’s Republic of China excluding Hong Kong, Macau and Taiwan
(the "PRC").
On May 22, 2015, the Company’s then-largest
shareholder Expedia Asia Pacific-Alpha Limited ("Expedia Asia Pacific"), which is a subsidiary of Expedia, Inc. ("Expedia"),
sold all of its equity interests in the Company to C-Travel International Limited ("C-Travel"), a Cayman Islands exempted
company and a wholly owned subsidiary of Ctrip.com International Ltd. ("Ctrip"), a Cayman Islands exempted company, Keystone
Lodging Holdings Limited ("Keystone"), Plateno Group Limited ("Plateno"), and Luxuriant Holdings Limited ("Luxuriant").
This transaction resulted in the purchasing shareholders holding shares representing approximately 82%, in the aggregate, of the
total voting power in the Company. Following the announcement of the Expedia sale, TCH Sapphire Limited (‘‘TCH’’),
a British Virgin Islands business company wholly owned by Tencent Holdings Limited ("Tencent"), held approximately 15%
of the total voting power in the Company.
The Company, through its subsidiaries,
conducts its operations in the PRC through a series of arrangements with the VIEs. These VIEs facilitate the Company’s participation
in internet content provision, call center services, travel agency and transportation ticketing services, which are industries
in the PRC in which foreign ownership is restricted. The Company does not have any direct equity interest in the VIEs. However,
pursuant to agreements with the VIEs and the individual shareholders of the VIEs, which include powers of attorney, spousal waivers,
technical services agreements, business operations agreements, equity interest pledge agreements, exclusive purchase right agreements
and loan agreements, the Company is the primary beneficiary of the VIEs with the power to direct the activities of the VIEs, absorb
the VIEs’ expected losses and receive the VIEs’ residual returns to the extent such returns are paid as dividends and
other payments. As a result, the Company consolidates the VIEs as required by Accounting Standards Codification ("ASC")
subtopic 810-10,
Consolidation: Overall
.
The principal terms of the key agreements
among the Company, its wholly-owned subsidiary eLongNet Information Technology (Beijing) Co., Ltd. ("eLong Information"),
and the VIEs and their shareholders are described below:
Powers of attorney.
The VIE shareholders
who are natural persons have each provided irrevocable powers of attorney in favor of the Company. Under the powers of attorney,
the Company (or its designee) has been fully authorized to exercise all powers of the VIE shareholders. The powers of attorney
are each for a period of twenty years, with automatic renewal as long as, with respect to each individual shareholder of each VIE,
such person remains a shareholder of the VIE. The powers of attorney provide power to the Company to direct and control the activities
of the VIEs.
Spousal waivers.
The spouses of
the VIE shareholders who are natural persons have each provided letters to the Company and eLong Information in which they confirm
that the individual VIE shareholders hold the shares of VIEs as nominees, and that such shareholding is not a part of the VIE shareholders’
personal assets, marital property, or inheritable property, and are not subject to any claims from any family members of the VIE
shareholders.
Technical services agreements.
eLong
Information has the exclusive right to provide the VIEs with services relating to their operations. eLong Information has also
granted the VIEs a non-exclusive license to use certain software owned by eLong Information. The VIEs have agreed to make payments
to eLong Information for the service and software license fees, and the service and software license fees may be adjusted by eLong
Information unilaterally. The technical services agreements are valid for twenty years with automatic renewal. Upon consolidation,
the service and software license fees are eliminated.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Renminbi (RMB)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS - continued
Business operations agreements.
eLong
Information has agreed to provide third parties with guarantees of performance by the VIEs of contracts, agreements and transactions
in connection with their business operations. In return, the VIEs have agreed to pledge their accounts receivable and mortgage
or pledge all their assets to eLong Information. eLong Information may, at its sole discretion, provide the VIEs performance guarantees
and working capital loan guarantees in connection with the VIEs’ business operations. In addition, the VIEs and their shareholders
have each agreed not to enter into any transaction that would substantially affect the assets, rights, obligations or operations
of the VIEs without the prior written consent of eLong Information. The VIE shareholders have agreed that, upon instruction from
eLong Information, they will appoint or remove the VIEs’ directors and executive officers and accept eLong Information’s
direction regarding operations and financial and personnel management of the VIEs. Under the business operations agreements, if
any of the agreements between eLong Information and the VIEs terminate or expire, eLong Information may terminate any other agreements
between eLong Information and the VIEs, including the business operations agreements. The business operations agreements have 20-year
terms with automatic renewal
Equity interest pledge agreements.
The VIE shareholders have each pledged their entire ownership interests in the VIEs to eLong Information to secure the payment
obligations of the VIEs under the technical services agreements and other agreements. Upon the occurrence of events of default
specified in the agreements, including failure of the VIEs to make required payments of service and software license fees to eLong
Information under the technical services agreements or to perform any of their obligations under other agreements, including the
business operations agreements, eLong Information may enforce the pledges. The equity interest pledge agreements have terms of
20 years with automatic renewal. The pledges by the individual shareholders of the VIEs in favor of eLong Information have been
registered with the Beijing Chaoyang District Administration of Industry and Commerce.
Exclusive purchase right agreements.
The Company and any third party designated by the Company have the option, at any time when applicable PRC law permits foreign
invested companies to operate an internet content provision business, to purchase from the VIE shareholders their respective equity
interests in the VIEs. The exercise price of the option is equal to the actual paid-in registered capital of the VIEs (or pro rata
portion thereof, as appropriate) unless otherwise specified under PRC law on the date of exercise. If the transfer price of the
equity interest is greater than the loan amount, the shareholders are required to immediately return the proceeds from the transfer
price in excess of the loan amount to the Company or a person designated by the Company. The exclusive purchase right agreements
have terms of 20 years with automatic renewal.
Loan agreements.
The Company has
made loans to the VIE shareholders for contributions to the paid-in registered capital of the VIEs. The full original principal
amount of such loans was outstanding as of December 31, 2015. The loans are interest free and have a repayment term of 20 years
with automatic renewal. The manner and timing of repayment is at the sole discretion of the Company. In the event that the Company
exercises its option to purchase the equity interests in the VIEs held by the VIE individual shareholders pursuant to the exclusive
purchase right agreements, the loans will accelerate, be repaid from the proceeds of the option exercise and be discharged. The
loans will also accelerate under certain other conditions, such as the incapacity of the VIE shareholders or the termination of
employment with the Company of the VIE shareholders. On consolidation, these loans are eliminated. The Company has agreed to provide
unlimited financial support to the VIEs for their operations, and the Company has agreed to not require repayment of such financial
support if the VIEs are unable to do so. The VIEs may not declare or distribute dividends without the prior consent of the Company.
The shareholders of the VIEs have each agreed to immediately pay to the Company or to a party designated by the Company any profit,
bonus, distribution or dividend that they receive from the VIEs. There were no bonuses, dividends or distributions of profit from
inception of the VIEs to December 31, 2015.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amounts in Renminbi (RMB)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS - continued
Mr. Guangfu Cui, the Company’s
former Chief Executive Officer, and Mr. Gary Ding, an employee of the Company, held the shares of the VIEs prior to September
7, 2015. On September 7, 2015, Mr. Cui and Mr. Ding transferred all of their equity interests of 87.5% and 12.5%,
respectively, in Beijing eLong Information Technology Co. Ltd. (‘‘Beijing Information’’) to Mr. Hao
Jiang, the Company’s Chief Executive Officer, and Mr. Rong Zhou, the Company’s Chief Operating Officer. In addition,
on September 7, 2015, Mr. Cui, transferred all of his equity interest of 1.67%, in Beijing Asiamedia Interactive Advertising
Co., Ltd. (‘‘Beijing Media’’) to Mr. Jiang. Upon the completion of these share transfers, Mr. Hao
Jiang and Mr. Rong Zhou hold 87.5% and 12.5%, respectively, of Beijing Information and Mr. Hao Jiang holds 1.67% of Beijing
Media. Beijing Information has direct and indirect subsidiaries and affiliate companies, including:
|
(1)
|
Beijing Media, 98.33% owned by Beijing Information and
1.67% owned by Mr. Jiang;
|
|
(2)
|
Beijing eLong Air Travel Services Co., Ltd. ("Beijing
Air"), 93% owned by Beijing Information and 7% owned by Beijing Media;
|
|
(3)
|
Hangzhou eLong Air Service Co., Ltd. ("Hangzhou Air"),
100% owned by Beijing Air;
|
|
(4)
|
Shenzhen JL-Tour International Travel Service Co., Ltd.("Shenzhen
JL"), 35% owned by Beijing Information and 21% owned by a wholly-owned subsidiary of Beijing Media;
|
|
(5)
|
Beijing eLong International Travel Co., Ltd. ("Beijing
Travel"), 70% owned by Beijing Information and 30% owned by Beijing Air; and
|
|
(6)
|
Other direct and indirect subsidiaries of Beijing Information.
|
Company management believes, and has obtained
a legal opinion from the Company’s outside PRC legal counsel, that (i) the ownership structure of the Company and its VIEs
is in compliance with PRC laws and regulations; (ii) the contractual arrangements with the VIEs and their shareholders are valid
and binding, and not in violation of current PRC laws or regulations; and (iii) the Group’s business operations are in compliance
with PRC laws and regulations in all material respects. However, uncertainties in the PRC legal system could cause the Company’s
current ownership structure to be found in violation of existing and/or future PRC laws or regulations and could limit the Company’s
ability to enforce its rights under these contractual arrangements. Furthermore, shareholders of the VIEs may have interests that
are different than those of the Company, which could potentially increase the risk that they would seek to act contrary to the
terms of the contractual agreements with the VIEs.
In addition, if the current structure or
any of the contractual arrangements were found to be in violation of any existing or future PRC laws or regulations, the Company
could be subject to penalties, which could include, but not be limited to, revocation of business and operating licenses, being
required to discontinue or restrict business operations, restriction of the Company’s right to collect revenues, temporary
or permanent blocking of the Company’s websites, the Company being required to restructure its operations, imposition of
additional conditions or requirements with which the Company may not be able to comply, or other regulatory or enforcement actions
against the Company that could be harmful to its business. The imposition of any of these or other penalties could have a material
adverse effect on the Company’s ability to conduct its business.
The following table sets forth the assets
and liabilities of the VIEs included in the Company’s consolidated balance sheets:
|
|
Year ended December 31,
|
|
|
|
2014
|
|
|
2015
|
|
|
|
RMB
|
|
|
RMB
|
|
|
US$
|
|
Current assets
|
|
|
443,485,074
|
|
|
|
494,584,873
|
|
|
|
76,350,748
|
|
Non-current assets
|
|
|
324,518,147
|
|
|
|
200,589,596
|
|
|
|
30,965,697
|
|
Total assets
|
|
|
768,003,221
|
|
|
|
695,174,469
|
|
|
|
107,316,445
|
|
Current liabilities
|
|
|
431,127,653
|
|
|
|
353,388,835
|
|
|
|
54,553,835
|
|
Non-current liabilities
|
|
|
21,231,082
|
|
|
|
15,170,717
|
|
|
|
2,341,955
|
|
Total liabilities
|
|
|
452,358,735
|
|
|
|
368,559,552
|
|
|
|
56,895,790
|
|
Total net assets
|
|
|
315,644,486
|
|
|
|
326,614,917
|
|
|
|
50,420,655
|
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS - continued
The following table sets forth the results
of operations of the VIEs included in the Company’s consolidated statements of comprehensive loss:
|
|
Year ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Net revenues
|
|
|
228,269,599
|
|
|
|
239,338,887
|
|
|
|
305,348,303
|
|
Net loss
|
|
|
14,383,536
|
|
|
|
26,756,066
|
|
|
|
82,678,932
|
|
As of December 31, 2015, there was
no pledge or collateralization of the VIEs’ assets to third parties. As all the VIEs are incorporated as limited liability
companies under PRC law, creditors of the VIEs do not have recourse to the general credit of the Company for the liabilities of
the VIEs, other than pursuant to any separate guarantee arrangements entered into by the Company or its subsidiaries, such as the
air ticket payment obligation discussed in Note 11 "Commitments and Contingencies". The Company is obligated to absorb
the VIEs’ expected losses and to provide financial support to the VIEs if required. For the years ended December 31, 2013,
2014 and 2015, the Company has not provided financial support other than that which it was contractually required to provide. The
Company believes that there are no assets of the VIEs that can be used only to settle obligations of the VIEs.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation
The consolidated financial statements include
the financial statements of the Company, its subsidiaries and VIEs. Transactions and balances between the Company, its subsidiaries
and VIEs have been eliminated upon consolidation.
(b) Basis of presentation
The accompanying consolidated financial
statements of the Group have been prepared in conformity with accounting principles generally accepted in the United States of
America ("U.S. GAAP").
(c) Use of estimates
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management of the Group to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
estimates. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, deferred tax assets
and liabilities, provision for loyalty programs, liability for virtual cash in eCoupon program, deferred revenue recognition, share-based
compensation, loss contingencies, allocation of the purchase price of acquisitions, useful lives of property and equipment and
intangible assets, and impairment of long-lived assets, goodwill and investment in non-consolidated affiliates.
(d) Foreign currencies
The Group’s functional and reporting
currency is the Renminbi ("RMB"). Transactions denominated in foreign currencies are measured at the exchange rate prevailing
on the transaction date. Monetary assets and liabilities denominated in currencies other than the RMB are remeasured into RMB using
applicable exchange rates quoted by the People’s Bank of China ("PBOC") at the balance sheet dates. All exchange
gains and losses are included in "foreign exchange gain/(loss)" in the consolidated statements of comprehensive loss.
Translations of amounts from RMB into United
States dollars ("US$") are solely for the convenience of the reader and are calculated at the rate of US$1.00 = RMB6.4778,
representing the noon buying rate in the City of New York for cable transfers of RMB, as published by the Federal Reserve Bank
of New York, on December 31, 2015. No representation is made that the RMB amounts could have been, or could be, converted,
realized or settled into US$ at that rate on December 31, 2015, at any other rate, or at all.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(e) Commitments and contingencies
In the normal course of business, the Group
is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters.
The Group records accruals for certain of its outstanding administrative, legal or regulatory proceedings and claims when it is
probable that a liability will be incurred and the amount of loss can be reasonably estimated. The Group evaluates, on a quarterly
basis, developments in administrative, legal or regulatory proceedings and claims that could affect the amount of any accrual,
as well as any developments that would make a loss contingency both probable and reasonably estimable. The Group discloses the
amount of the accrual if it is material. When a loss contingency is not both probable and estimable, the Group does not record
an accrued liability but discloses the nature and the amount of the claim, if material. However, if the loss (or an additional
loss in excess of the accrual) is at least reasonably possible, then the Group discloses an estimate of the loss or range of loss,
if such estimate can be made and material, or states that such estimate is immaterial if it can be estimated but immaterial, or
discloses that an estimate cannot be made. The assessments of whether a loss is probable or reasonably possible, and whether the
loss or a range of loss is estimable, often involve complex judgments about future events. The Group is often unable to estimate
the loss or a range of loss, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early
stages, or (iii) there is a lack of clear or consistent interpretation of laws specific to the industry or treatment of specific
issues among different jurisdictions. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution
of such matters, including eventual loss, fine, penalty or business impact, if any.
(f) Revenue recognition
The Group’s revenues are principally
derived from providing accommodation reservation, transportation ticketing, and other services. The Group recognizes revenues when
all of the following have occurred: persuasive evidence of arrangement with the customer, services have been performed, fees are
fixed or determinable, and collectability of the fees is reasonably assured, as prescribed by ASC 605-10,
Revenue Recognition,
Overall
. These criteria as related to Group revenues are considered to have been met as follows:
Accommodation reservation services
The Group receives commissions from travel
suppliers or customers for accommodation reservations booked through the Group (including hotel groupbuy and hotel prepaid business).
Commissions from accommodation reservation services are recognized upon the confirmation with the hotel that the customers have
completed their stays. The Group presents revenues from such transactions on a net basis in circumstances where the Company does
not assume inventory risk for hotel room nights and acts as an agent; and on a gross basis in circumstances where the Company prepurchases
hotel room nights and assumes inventory risk and acts as a principal. Revenues recognized on a gross basis represent the prices
of the room nights sold to customers. The costs of the rooms paid to the hotels are recorded as "cost of services" in
the consolidated statements of comprehensive loss. Contracts with certain travel suppliers contain escalating commissions that
are subject to specific performance targets. Such escalating commissions are recognized when the performance targets have been
achieved.
Transportation ticketing services
Transportation ticketing services consist
primarily of the reservation of air tickets and train tickets, sale of travel insurance and other transportation-related services.
The Group receives commissions from travel suppliers for ticketing services under various services agreements.
The commissions from such services are
recognized upon the issuance of the tickets or the insurance, net of estimated cancellations. The Group presents revenues from
such transactions on a net basis in the consolidated statements of comprehensive loss, as the Group acts as an agent, does not
assume any inventory risk, and has no obligations for cancelled ticket reservations. The Group sometimes also receives additional
discretionary commissions from certain travel suppliers when performance targets are met. Such discretionary commissions are recognized
on a cash basis because the Group cannot reasonably estimate the amount or timing of receipt of such commissions in advance.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(f) Revenue recognition - continued
Other Services
Other revenues are primarily derived from
advertising business, and are recognized over the contractual advertisement display period.
The majority of the Group’s accommodation
reservation services and transportation ticketing services are subject to business tax and surcharges on the revenues generated
from services rendered in the PRC. Business tax and surcharges are deducted from revenues to arrive at net revenues.
Effective September 1, 2012, the PRC Ministry
of Finance and the State Administration of Taxation launched a Business Tax to Value Added Tax ("VAT") Transformation
Pilot Program (the "Pilot Program"), for certain industries in eight regions, including Beijing. Under the Pilot Program,
a portion of accommodation reservation services in certain cities as well as advertising services are subject to VAT. VAT is reported
as a deduction to revenue when incurred.
Liability for eCoupon program
virtual cash
From
time to time, the Group offers various incentives to customers. The Group accounts for these incentives in accordance with ASC
subtopic 605-50,
Revenue Recognition: Customer Payments and Incentives
,
and records the estimated cost of the incentives as a reduction in revenue. If the reduction of revenue resulted in negative revenue
for a specific customer on a cumulative basis, the amount of the cumulative shortfall is recharacterized as sales and marketing
expenses. The Group’s obligation to provide cash back under the incentives is recorded as "eCoupon program virtual cash
liability" in the consolidated balance sheets. The liability is reduced as customers redeem such balances or the right to
redeem expires.
(g) Income taxes
Income taxes are provided for using the
liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates or change in tax status is recognized in income in the period the change in tax
status occurs or the change in tax rates or tax law is enacted. A valuation allowance is provided to reduce the amount of deferred
tax assets if it is considered more likely than not that some or all of the deferred tax assets will not be realized.
In accordance with ASC subtopic 740-10,
Income Taxes, Overall
, the Group recognizes the benefit of a tax position if the tax position is more likely than not to prevail
based on the technical merits of the tax position. Tax positions that meet the "more likely than not" threshold are measured
at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(g) Income taxes - continued
The Group estimates its liability for unrecognized
tax benefits which are periodically assessed 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 ultimate outcome for
a particular tax position may not be determined with certainty prior to the conclusion of a tax audit or appeal or litigation process.
The actual benefits ultimately realized may differ from the Group’s estimates. As each tax audit is concluded, adjustments,
if any, are recorded in the Group’s financial statements. Additionally, in future periods, changes in facts, 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 the changes occur. The Group records unrecognized
tax benefits, if any, in "accrued expenses and other current liabilities" or the non-current "other liabilities"
line item in the consolidated balance sheets. The Group has elected to include interest and penalties related to an uncertain tax
position (if and when required) in "income tax expense" in the consolidated statements of comprehensive loss.
(h) Share-based compensation
The Group applies ASC 718,
Compensation-Stock
Compensation,
in connection with its share-based compensation. In accordance with ASC 718, all grants of share options and
restricted share units (which the Group referred to as "performance units" prior to 2014) are recognized in the consolidated
financial statements based on their grant date fair values. The Group believes it had sufficient historical exercise data to provide
a reasonable basis upon which to estimate the expected lives of its share options as the Group’s ADSs have been publicly
traded since 2004. ASC subtopic 718-10,
Compensation-Stock Compensation: Overall,
requires forfeitures to be estimated at
the grant date and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based
compensation cost is recorded net of estimated forfeitures such that the expense is recorded only for those share-based awards
that are expected to vest. The Group recognizes compensation cost on share-based awards without performance conditions on
a straight-line basis over the requisite service period. For share-based awards with performance conditions, compensation cost
is recognized when it is probable that the performance conditions will be achieved.
Share-based compensation awards which are
settled in cash upon vesting are classified as liabilities and included in "accrued expenses and other current liabilities"
in the consolidated balance sheets. Compensation cost is determined based on the current share price at the balance sheet dates,
and the proportionate amount of the requisite service that has been rendered to such date. Changes in the fair value of the liability-classified
awards, after the requisite service period has been completed and before the awards are vested, are recognized as compensation
cost in the period in which the change in fair value occurs.
The Group accounts for a change in any
of the terms or conditions of share options as a modification in accordance with ASC subtopic 718-20,
Compensation-Stock Compensation:
Awards Classified as Equity
, whereby the incremental fair value, if any, of a modified award, is recorded as compensation
cost on the date of modification for vested awards or over the remaining vesting period for unvested awards. The incremental compensation
cost is the excess of the fair value of the modified award on the date of modification over the fair value of the original award
immediately before the modification. The amount of cash or other assets transferred (or liabilities incurred) to repurchase an
equity award should be charged to equity to the extent that the amount paid does not exceed the fair value of the equity instruments
repurchased at the repurchase date. Any excess of the repurchase price over the fair value of the instruments repurchased should
be recognized as additional compensation cost. In accordance with ASC 718-10,
Compensation-Stock Compensation: Overall,
the
Group recognizes the cost of share-based payments incurred by investors in it on its behalf, and a corresponding capital contribution.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(i) Provision for loyalty points
eLong members earn loyalty points based
on their usage of the Group’s services. Historically the Group provided non-cash gifts, hotel room stays and air tickets
to eLong members upon redemption of loyalty points that accumulate based on the members’ transactions with the Group. In
December 2013, the Group eliminated the option to redeem loyalty points for non-cash gifts other than hotel room stays or air tickets.
Beginning in June 2015, the loyalty points could only be redeemed for discounts for online bookings of hotels. The Group recognizes
estimated costs to provide related items based on historical redemption rates. The liabilities for loyalty points are reduced upon
the redemption or expiration of outstanding loyalty points. The estimated costs are included in "sales and marketing"
in the consolidated statements of comprehensive loss and the estimated liabilities are included in "accrued expenses and other
current liabilities" in the consolidated balance sheets.
(j) Cash and cash equivalents
Cash and cash equivalents include cash
on hand and time deposits in commercial banks or other financial institutions. The Group considers highly liquid investments that
are readily convertible to known amounts of cash and with original maturities from the date of purchase of three months or less
to be cash equivalents. All cash and cash equivalents are unrestricted as to withdrawal and use.
(k) Restricted cash
Restricted cash represents cash that cannot
be withdrawn without the permission of third parties. The Group’s restricted cash consists primarily of deposits required
by its business partners and commercial banks.
(l) Short-term investments
Short-term investments represent
time deposits of more than three months- and less than or equal to twelve months- duration held in commercial banks.
(m) Accounts receivable and allowance
for doubtful accounts
Accounts receivable are recognized at the
invoiced amount less an allowance for any potentially uncollectible amounts. An allowance for doubtful accounts is provided based
on a series of factors, including an aging analysis of account balances, historical bad debt rates, repayment patterns, current
credit worthiness and current economic trends.
(n) Property and equipment
Property and equipment are stated at cost,
net of accumulated depreciation and amortization. The Group also capitalizes certain costs related to the development of internal-use
software in accordance with ASC subtopic 350-40,
Intangibles-Goodwill and Other: Internal-Use Software
and ASC subtopic
350-50,
Intangibles-Goodwill and Other: Website Development Costs
. Costs incurred related to the planning and post-implementation
phases of development are expensed as incurred. Depreciation and amortization are calculated using the straight-line method over
the following estimated useful lives, taking into account any estimated residual value:
Capitalized software development cost
|
|
|
3 years
|
|
Computer equipment and purchased software
|
|
|
3-5 years
|
|
Furniture and office equipment
|
|
|
5 years
|
|
Leasehold improvements are amortized using
the straight-line method over 1 to 10 years which represents the shorter of the remaining period of the lease term or estimated
useful life of the assets.
Projects in progress refer to labor costs
capitalized in connection with software development before the software is substantially completed and ready for its intended use.
The Group capitalizes costs incurred during the application development stage related to the development of internal used software,
and expenses costs incurred related to the planning and post-implementation phases of development.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(o) Investments in non-consolidated affiliates
In accordance with ASC subtopic 325-20,
Investments-Other: Cost Method Investments
, for investments in an investee over which the Group does not have significant influence,
the Group carries the investment at cost and only adjusts for other-than-temporary declines in fair value and the distributions
of earnings. The Group regularly evaluates the impairment of the cost method investments based on performance and financial position
of the investee as well as other evidence of market value. Such evaluation includes, but is not limited to, reviewing the investee’s
cash position, recent financing, projected and historical financial performance, cash flow forecasts and financing needs. 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 at the balance sheet date of the reporting period for which the assessment is made. The fair value then becomes
the new cost basis of the investment.
The Group applies the equity method in
accounting for investments in non-consolidated affiliates in which the Group has the ability to exercise significant influence
but does not own a majority equity interest or otherwise control.
Under ASC 323,
Investments-Equity Method
and Joint Ventures
, the Group’s share of post-acquisition profits or losses of non-consolidated affiliates is recognized
in the consolidated statements of comprehensive loss. Unrealized gains on transactions between the Group and non-consolidated affiliates
are eliminated to the extent of the Group’s interest in the non-consolidated affiliates, and unrealized losses are also eliminated
unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in a
non-consolidated affiliate equals or exceeds the carrying value of the Group’s equity interest in the non-consolidated affiliate,
the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the non-consolidated
affiliate. The Group monitors its investment in non-consolidated affiliates for other-than-temporary impairment by considering
factors including, but not limited to, current economic and market conditions, the operating performance of the non-consolidated
affiliates including current earnings trends and other affiliate-specific information. The Group recorded impairment charges of
nil, RMB35,085,293 and RMB459,253 in total with respect to the non-consolidated affiliates for the years ended December 31, 2013,
2014 and 2015, respectively, when the decline in the value of the investments was determined to be other-than-temporary under ASC
323.
(p) Employee loan program
In November 2011, the Group launched a RMB100
million employee interest-free loan program (executive officers and directors of the Group are ineligible for this program). During
the years ended December 31, 2013, 2014 and 2015, the Group disbursed RMB8,518,187, RMB4,999,000 and RMB4,685,000, respectively,
of loan principal under this program. The Group accounts for employee interest-free loans in accordance with ASC subtopic 835-30,
Imputation of Interest
, whereby the effective interest rate is applied and the difference between the present value of the
loan receivables and the cash loaned to the employees is regarded as employee compensation during the loan term. At the same time,
to accrete the loan receivable to its face value, interest income is recognized in the same amount. The amounts of employee loans
receivable outstanding for 12 months or less as of December 31, 2014 and 2015 were RMB3,432,785 and RMB3,051,018, respectively,
which are included in "other current assets" in the consolidated balance sheets. The amounts of employee loans receivable
outstanding for more than 12 months as of December 31, 2014 and 2015 were RMB7,632,434 and RMB5,728,265, respectively, which are
included in "other non-current assets" in the consolidated balance sheets.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(q) Business combinations
The Group accounts for all business combinations
under the purchase method in accordance with ASC 805,
Business Combinations
. The cost of an acquisition is measured as the
aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued.
The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities
acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling
interests. The excess of (i) the total of the cost of the 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 identifiable net assets
of the acquiree, the difference is recognized directly in earnings.
The determination and allocation of fair
values to the identifiable net assets acquired, liabilities assumed and noncontrolling interest is based on various assumptions
and valuation methodologies requiring considerable judgment. The most significant variables in these valuations are discount rates,
terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used
to determine the cash inflows and outflows. The Group determines discount rates to be used based on the risk inherent in the acquiree’s
current business model and industry comparisons. Although the Group believes that the assumptions applied in the determination
are reasonable based on information available at the date of acquisition, actual results may differ from forecasted amounts and
the differences could be material.
(r) Goodwill and other intangible assets
Goodwill represents the excess of costs
over fair value of the net assets of businesses acquired. The Group follows ASC subtopic 350-20,
Intangibles-Goodwill and Other:
Goodwill
. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life
are not amortized, but instead tested for impairment at least annually, or more frequently if certain circumstances indicate a
possible impairment may exist.
The Group tests goodwill for impairment
by performing a qualitative assessment before calculating the fair value of a reporting unit in step one of the goodwill impairment
test. If the Group determines, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than
not less than the carrying amount, a two-step impairment test is required. Under the two-step impairment test, the Group evaluates
the recoverability of goodwill at the reporting unit level. In the first step, the fair value of the reporting unit is compared
to its carrying value including goodwill. The fair value of the reporting unit is determined based upon the present value of estimated
future cash flows of the reporting unit. If the fair value of the reporting unit is less than the carrying value, a second step
is performed which compares the implied fair value of the reporting unit’s goodwill to the carrying value of the goodwill.
In determining the implied fair value of the reporting unit goodwill, the fair values of the net tangible assets and recognized
and unrecognized intangible assets are deducted from the fair value of the reporting unit. If the implied fair value of the reporting
unit goodwill is lower than its carrying amount, goodwill of the reporting unit is impaired and is written down to its implied
fair value.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(r) Goodwill and other intangible assets
-continued
The Group follows ASC 350-30,
General
Intangibles Other Than Goodwill
, which requires an entity to test indefinite-lived intangible assets (1) annually for impairment
and (2) between annual tests if there is a change in events or circumstances and also provides the option of performing a qualitative
assessment before calculating the fair value of the asset. If the Group determines, on the basis of qualitative factors, that the
fair value of indefinite-lived intangible assets is more likely than not less than the carrying amount, further testing is required.
Under the further testing, the impairment test on indefinite-lived intangible assets that are not subject to amortization consists
of a comparison of the fair value of each intangible asset with its carrying amount. If the carrying amount of an intangible asset
exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Assets with definite lives are carried
at cost less accumulated amortization. Intangible assets with definite lives are amortized using the straight-line method over
the estimated economic life.
The Group fully impaired indefinite-lived
intangible assets in the amount of RMB1,740,000 in the year ended December 31, 2013 and recorded goodwill impairment charges of
nil, RMB5,524,213 and nil for the years ended December 31, 2013, 2014 and 2015 respectively.
(s) Impairment of long-lived assets other
than goodwill
The Group evaluates impairment of its
long-lived assets to be held and used, including property and equipment, purchased intangible assets which are subject to
amortization and other non-current assets, when events or changes in circumstances indicate, in management’s judgment,
that the carrying value of such assets may not be recoverable in accordance with ASC subtopic 360-10,
Property, Plant and
Equipment-Overall.
Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of
the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying value of an
asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount that the
carrying value exceeds the estimated fair value. Assets to be disposed of are separately presented in the consolidated
balance sheets as assets held for sale and reported at the lower of carrying amount or estimated fair value less the costs to
sell, and are no longer depreciated. The Group recorded intangible assets with definite lives impairment charges
of RMB177,000, nil, and RMB40,401,740 for the years ended December 31, 2013, 2014 and 2015, respectively.
(t) Employee benefit plans
The Group participates in various defined
contribution plans pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Under PRC
law, the Group is required to make contributions to these plans at stated contribution rates based on monthly compensation of qualified
employees. The Group has no obligation for payment of employee benefits associated with these plans beyond the mandatory contributions
payable during the period of the employee’s employment with the Group. For the years ended December 31, 2013, 2014 and
2015, the Group contributed RMB65,418,062, RMB87,117,949 and RMB116,583,265, respectively, to these plans.
(u) Earnings per share
For the calculation of basic earnings/(loss)
and diluted earnings per share, ordinary shares include ordinary shares and high-vote ordinary shares. Basic earnings/(loss) per
share is computed by dividing net income/(loss) by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated by dividing net income by the weighted average number of ordinary and dilutive ordinary
equivalent shares outstanding during the period. Ordinary equivalent shares consist of the ordinary shares issuable upon the exercise
of outstanding share options, share warrants and the settlement of restricted share units. Ordinary equivalent shares in the diluted
net loss per share computation are excluded in net loss period as their effect would be anti-dilutive.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(v) Advertising
expense
The Group incurs advertising expenses to
promote the Group’s products and services. The Group expenses the production costs associated with advertisements in the
period in which the advertisement first takes place. The Group expenses the advertising costs as incurred each time the advertisement
is displayed or broadcasted. For the years ended December 31, 2013, 2014, and 2015, advertising expenses were RMB409,924,042,
RMB388,847,145 and RMB334,764,989, respectively, and were recorded as "sales and marketing" expenses in the consolidated
statements of comprehensive loss. As of December 31, 2014 and 2015, the Group had RMB40,535,603 and RMB23,395,626, respectively,
of prepaid advertising expenses which were included in "prepaid expenses" in the consolidated balance sheets.
(w) Segment reporting
In accordance with ASC subtopic
280-10,
Segment Reporting: Overall
, the Group’s chief operating decision maker has been identified as the Chief Executive
Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Group.
Beginning in 2013, the Group has operated and managed its business as a single segment that includes primarily the businesses of
provision of accommodation reservations and transportation ticketing. As such, all financial segment and product information required
by ASC subtopic 280-10 can be found in the consolidated financial statements.
As the Group generates substantially all
revenues from customers in the PRC, no geographical segments are presented.
(x) Operating leases
The Group leases office space under operating
lease agreements with original lease periods of up to ten years. Rental expenses are recognized from the date of initial possession
of the leased property on a straight-line basis over the term of the lease. Certain lease agreements contain rent holidays, which
are recognized on a straight-line basis over the lease term. Lease renewal periods are considered on a case-by-case basis and are
not included in the initial lease term.
(y) Fair value measurements
Financial instruments of the Group are
primarily comprised of cash and cash equivalents, restricted cash, accounts receivable, short-term investments, amounts due from
related parties, prepaid expenses, advances to suppliers, other current assets, accounts payable, amounts due to related parties,
deferred revenue, advances and deposits from customers, accrued expenses and other liabilities. As of December 31, 2014 and
2015, the carrying values of these financial instruments approximated their fair value due to their short term nature. The carrying
values of receivables from the employee interest-free loan program in other non-current assets also approximated their fair values,
as the Group imputes interest at rates determined based on the prevailing interest rates in the market. The Group follows ASC subtopic
820-10,
Fair Value Measurements and Disclosures
, which establishes a three-tier fair value hierarchy, and prioritizes the
inputs used in measuring fair value as follows:
Level 1 - Observable inputs that reflect
quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 - Other inputs that are directly
or indirectly observable in the marketplace; and
Level 3 - Unobservable inputs which are
supported by little or no market activity.
ASC subtopic 820-10 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.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(z) Treasury shares
In the years ended December 31, 2013, 2014
and 2015, the Group repurchased nil ADSs, 56,367 ADSs and nil ADSs (1 ADS = 2 ordinary shares) at a cost of nil, approximately
US$0.7 million and nil, respectively, including brokerage commissions. The repurchase of ADSs is accounted for under the cost method,
whereby the entire cost of the acquired shares is recorded as treasury shares. In the years ended December 31, 2013, 2014 and 2015,
the Group reissued 757,178, 563,811 and nil repurchased ADSs, respectively, to employees who were entitled to receive ADSs upon
exercise of share options or upon vesting of restricted share units under the Group’s share compensation plans. The Group
accounted for these transactions in accordance with ASC subtopic 505-30,
Equity-Treasury Stock.
(aa) Government subsidies
Government subsidies represent rewards
provided by PRC government authorities to the Group, without any further obligations, for business achievements made by the Group.
Government subsidies are recognized in "other income" in the consolidated statements of comprehensive loss when received,
as the amount of the subsidies and the timing of payment are determined solely at the discretion of the relevant government authorities
and there is no assurance that the Group will continue to receive any or similar subsidies in the future.
(ab) Recently issued accounting pronouncements
In May 2014, the FASB issued an ASU amending
revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the
nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB
issued an ASU deferring the effective date of the revenue standard so it would be effective for annual and interim reporting periods
beginning after December 15, 2017, with early adoption prohibited before December 15, 2016. The Group is in the process of evaluating
the impact of the adoption of this new guidance on the consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12,
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the
Requisite Service Period
("ASU 2014-12"). The amendments require that a performance target that affects vesting and
that could be achieved after the requisite service period be treated as a performance condition. For all entities, the amendments
in ASU 2014-12 are effective for annual and interim reporting periods beginning after December 15, 2015. Earlier adoption is permitted.
The Group does not expect the adoption to have a material impact on the consolidated financial statements.
In August 2014, the FASB issued ASU No.
2014-15,
Presentation of Financial Statements — Going Concern
(Subtopic 205-40):
Disclosures of Uncertainties
about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15")
. ASU 2014-15 requires management to evaluate
whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern
within one year after the date that the financial statements are issued or are available to be issued. ASU 2014-15 also requires
management to disclose certain information depending on the results of the going concern evaluation. The provisions of ASU 2014-15
are effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early adoption
is permitted. The Company will be required to perform an annual assessment of its ability to continue as a going concern when
this standard becomes effective on January 1, 2016. The Group does not expect the adoption to have a material impact on the consolidated
financial statements.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
(ab) Recently issued accounting pronouncements
- continued
In April 2015, the FASB issued Accounting
Standards Update 2015-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
("ASU
2015-08"). ASU 2015-08 changes the criteria for determining which disposals can be presented as discontinued operations and
modified related disclosure requirements. Under the new guidance, a discontinued operation is defined as: (i) a disposal
of a component or group of components that is disposed of or is classified as held for sale that represents a strategic shift that
has or will have a major effect on an entity's operations and financial results or (ii) an acquired business or nonprofit
activity that is classified as held for sale on the date of acquisition. The standard states that a strategic shift could include
a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity
method investment, or (iv) other major parts of an entity. The guidance is effective prospectively for reporting periods beginning
on or after December 15, 2015 and interim periods within that year. Early adoption is permitted. In 2015, the Group early
adopted ASU2015-08. Under the new guidance, the disposal of a subsidiary in 2015 was not qualified as a discontinued operation,
due to the disposal did not represent a strategic shift that has or will have a major effect on an entity's operations and financial
results.
In January 2016, the FASB issued ASU 2016-1,
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
,
related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure
requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment
when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is
effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Group is
in the process of evaluating the impact of adopting this new guidance on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which amends the existing accounting standards for lease accounting, including requiring lessees to
recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard, effective on
January 1, 2019, requires a modified retrospective transition approach for all leases existing at, or entered into after, the date
of initial application, with an option to use certain transition relief and allows for early adoption on January 1, 2016. The Group
is in the process of evaluating the impact of adopting this new guidance on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606)
:
Principal versus Agent Considerations (Reporting Revenue Gross versus
Net)
. The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance
on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative
examples to assist in the application of the guidance. The effective date and transition of these amendments are the same as the
effective date and transition of ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. Public entities should
apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting
periods therein. The Group is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
(ac) Comparative information
Certain items in prior years’ consolidated
financial statements have been reclassified to conform to the current period’s presentation in order to facilitate comparison.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(3) ACQUISITIONS
2013 Acquired Company
On November 21, 2013, the Group acquired
a 51.6% controlling interest in a PRC-based software company ("2013 Acquired Company"). The total consideration was RMB18,750,000,
of which RMB5,000,000 was paid to selling shareholders of 2013 Acquired Company for a 25% interest and RMB13,750,000 was injected
into 2013 Acquired Company to acquire an additional 26.6% interest. The following table summarizes the allocation of the purchase
price for the acquisition.
|
|
Fair value
|
|
Net assets
|
|
|
(2,298,803
|
)
|
Intangible assets with definite lives
|
|
|
7,905,854
|
|
Deferred tax liabilities arising from the acquisition
|
|
|
(1,976,463
|
)
|
Total fair value of net assets acquired (a)
|
|
|
3,630,588
|
|
|
|
|
|
|
Purchase consideration to original shareholders (b)
|
|
|
5,000,000
|
|
Noncontrolling interest (c)
|
|
|
16,734,018
|
|
Goodwill (b+c-a)
|
|
|
18,103,430
|
|
Goodwill, which is not tax deductible, is
primarily attributable to the synergies expected to be achieved from the acquisition.
The fair value of noncontrolling interests
was measured proportionally based on the Group’s purchase price of 51.6% of 2013 Acquired Company’s interests, taking
into consideration of noncontrolling interests discount.
In performing the purchase price allocation,
the Group considered the analyses of historical financial performance and estimates of future performance of 2013 Acquired Company’s
business. The fair value of intangible assets was measured by income approach and the major components of intangible assets associated
with the 2013 Acquired Company acquisition are set out below:
|
|
Fair value
|
|
|
Useful lives
|
Trade name
|
|
|
3,076,912
|
|
|
5 years
|
Self-developed software
|
|
|
4,828,942
|
|
|
3 years
|
Intangible assets with definite lives
|
|
|
7,905,854
|
|
|
|
The results of operation of 2013 Acquired
Company were not significant and have been included in the consolidated financial statements since the acquisition date. The net
loss proportionally taken by the 48.4% noncontrolling shareholders was recorded in "net loss attributable to noncontrolling
interests" in the consolidated statements of comprehensive loss. Neither the results of operations since the acquisition date
nor pro forma results of operations of 2013 Acquired Company were presented because the effects of 2013 Acquired Company were not
material to the Group’s consolidated financial statements.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(3) ACQUISITIONS - continued
Shenzhen JL
In 2012, the Group acquired a 35%
equity interest in Shenzhen JL for consideration of RMB30,926,154 (for which the Group paid
RMB24,642,154, RMB1,428,000 and RMB4,856,000 in the years ended December 31, 2012, 2013 and 2014, respectively). In 2014, the
Group acquired an additional 21% equity interest in Shenzhen JL, as well as an option from a selling
shareholder
to repurchase her remaining equity interest at fair value in the event of any disagreement with respect to her participation
rights, for total consideration of RMB60,000,000. The option was not recognized in the consolidated balance sheets as it was
not legally detachable, separately exercisable, and net settleable. In 2014, the Group settled RMB52,092,771 of the
purchase consideration in cash. In "accrued expenses and other current liabilities" in the consolidated balance
sheets as of December 31, 2014, the Group recognized a liability for the unpaid consideration of RMB7,907,229, which was paid
off in 2015. The following tables summarize the allocation of the purchase price for the acquisition.
Allocation of the purchase price for the
acquisition was as follows:
|
|
Fair value
|
|
Accounts receivable, net
|
|
|
113,783,547
|
|
Other current assets
|
|
|
93,492,599
|
|
Non-current assets
|
|
|
5,442,860
|
|
Accounts payable
|
|
|
(154,282,913
|
)
|
Accrued expenses and other current liabilities
|
|
|
(29,565,780
|
)
|
Noncontrolling interest
|
|
|
(229,724
|
)
|
Intangible asset with definite lives
|
|
|
76,690,000
|
|
Deferred tax liabilities
|
|
|
(19,172,500
|
)
|
Total fair value of net assets acquired (a)
|
|
|
86,158,089
|
|
|
|
|
|
|
Purchase consideration in 2014 (b)
|
|
|
60,000,000
|
|
Investment in non-consolidated affiliates (c)
|
|
|
34,674,235
|
|
Gain on investment in non-consolidated affiliates after control (d)
|
|
|
17,049,903
|
|
Non-controlling interest (e)
|
|
|
65,024,631
|
|
Goodwill (b+c+d+e-a)
|
|
|
90,590,680
|
|
The non-controlling interest was initially
recorded at fair value on the acquisition date. The fair value of the non-controlling interests is estimated using the income approach.
As Shenzhen JL is a private company, the fair value measurement is based on significant inputs that are not observable
in the market. The fair value estimates are based on significant inputs that market participants would consider when estimating
equity fair value of the same industry, which include discount rate, projected terminal value, financial multiples of companies
in the same industry as Shenzhen JL and (d) adjustments for lack of control or lack of marketability. Goodwill, which
is not tax deductible, is primarily attributable to the synergies expected to be achieved from the acquisition.
The fair value of the Group’s pre-existing
investment in non-consolidated affiliates was measured proportionally based on the Group’s purchase price for a 56% equity
interest in Shenzhen JL taking into consideration a discount for noncontrolling interests. Gain on investment in non-consolidated
affiliates after the Group acquired controlling interests was included in "net income/(loss) in non-consolidated affiliates"
in the consolidated statements of comprehensive loss for the year ended December 31, 2014.
In performing the purchase price allocation,
the Group considered the analyses of historical financial performance and estimates of future performance of Shenzhen JL
business. The fair value of intangible assets was measured using the income approach, and the major components of intangible assets
associated with the Shenzhen JL acquisition are set out below:
|
|
Fair value
|
|
|
Useful lives
|
Trade name
|
|
|
76,690,000
|
|
|
5 years
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(3) ACQUISITIONS - continued
Shenzhen JL-continued
In 2015, changes in circumstances in the
geographical territory covered by Shenzhen JL indicated that the carrying value of the trade name might not be recoverable.
With the assistance of an external valuer, the Group wrote the value of trade name down to its fair value, which was measured using
the relief from royalty method. As such, an impairment charge of RMB40,401,740 was recorded as "impairment of goodwill and
other intangible assets" in the consolidated statements of comprehensive loss for the year ended December 31, 2015.
The following unaudited pro forma consolidated
financial information for the years ended December 31, 2013 and 2014 is presented as if the acquisition had occurred at the beginning
of the periods presented. These pro forma results have been prepared for comparative purpose only and do not purport to be indicative
of what operating results would have been had the acquisition actually taken place on the dates indicated.
|
|
December 31,
|
|
|
|
2013
|
|
|
2014
|
|
Net revenues
|
|
|
211,277,523
|
|
|
|
215,068,193
|
|
Net loss attributable to eLong, Inc.
|
|
|
2,602,191
|
|
|
|
8,079,150
|
|
These pro forma amounts have been derived
after applying the Group’s accounting policies and adjusting the results of Shenzhen JL to reflect the additional
amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January
1, 2013 and January 1, 2014, respectively.
Jiuyou assets related to accommodation
reservation business
In December 2010, May 2012 and
February 2014, the Group acquired 20%, 1.8% and 12.2%, respectively, of the equity interests in Beijing Jiuyou Technology
Co., Ltd. ("Jiuyou") from selling shareholders and accounted for the investments using the equity method. In 2014,
due to a decline in the performance of Jiuyou’s business, the Group fully impaired its equity method investment in
Jiuyou and recorded an impairment charge of RMB31,672,147 as "net income/(loss) in non-consolidated affiliates" in the
consolidated statement of comprehensive loss.
In February 2015, the Group entered into
an agreement with Jiuyou’s individual shareholders, pursuant to which the Group acquired certain Jiuyou assets related to
accommodation reservation business for RMB5,000,000, and transferred the Group’s entire equity interest in Jiuyou to Jiuyou’s
individual shareholders. Upon the completion of this transaction, Jiuyou ceased to be an equity method investee of the Group and
the Group accounted for the acquisition of Jiuyou’s accommodation reservation assets as a business combination. The Group
and Jiuyou also agreed that Jiuyou will provide certain services to the Group during the next three years.
The following table summarizes the allocation
of the purchase price for the acquisition of Jiuyou’s assets related to the accommodation reservation business:
|
|
Fair value
|
|
|
Useful lives
|
Trade name
|
|
|
1,570,000
|
|
|
5 years
|
Customer list
|
|
|
510,000
|
|
|
5 years
|
Intangible assets with definite lives
|
|
|
2,080,000
|
|
|
|
Goodwill
|
|
|
2,920,000
|
|
|
|
Total purchase consideration
|
|
|
5,000,000
|
|
|
|
Goodwill, which is not tax deductible,
is primarily attributable to the synergies expected to be achieved from the acquisition.
The fair value of the trade name was measured
using the relief from royalty method, with a royalty rate of 1.5%, a tax rate of 25% and a discount rate of 19%, while the fair
value of the customer list was measured using the multi-period excess earnings method, using an annual revenue growth rate ranging
from -5% to 5%, a terminal growth rate of 3% and a discount rate of 19%.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(4) DECONSOLIDATION OF A SUBSIDIARY
On March 15, 2015, the Group entered into
a share purchase agreement with an independent third party to dispose all of the Group’s equity interest in Nanjing Xici
Information Technology Share Co., Ltd. ("Nanjing Xici") for cash consideration of RMB75,820,000, of which RMB68,170,000
was received in 2015. Upon the completion of the transaction on March 15, 2015, the Group ceased to be the controlling shareholder
of Nanjing Xici, and accordingly deconsolidated Nanjing Xici's financial statements from the Group's consolidated financial statements.
The Group recognized a gain on loss of control of RMB71,081,854, which was recorded as "gain on disposition of a subsidiary"
in the consolidated statements of comprehensive loss. The gain on such deconsolidation is calculated as follows:
|
|
As of
|
|
|
|
March 15, 2015
|
|
|
|
|
|
Cash receipt
|
|
|
68,170,000
|
|
Other receivable
|
|
|
7,650,000
|
|
Less: Cash and cash equivalents
|
|
|
3,860,094
|
|
Accounts receivable
|
|
|
8,910,545
|
|
Prepaid expenses and other current assets
|
|
|
1,409,432
|
|
Property and equipment, net
|
|
|
2,948,705
|
|
Intangible assets, net
|
|
|
334,875
|
|
Deferred tax assets-non-current
|
|
|
515,620
|
|
Accounts payable, accrued expenses and other payables
|
|
|
(11,079,712
|
)
|
Noncontrolling interest
|
|
|
(2,161,413
|
)
|
Gain on disposition of Nanjing Xici
|
|
|
71,081,854
|
|
(5) ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Accounts receivable
|
|
|
300,623,051
|
|
|
|
242,081,504
|
|
Allowance for doubtful accounts
|
|
|
(4,991,223
|
)
|
|
|
(6,519,594
|
)
|
Accounts receivable, net
|
|
|
295,631,828
|
|
|
|
235,561,910
|
|
The following table presents movements
in the allowance for doubtful accounts:
|
|
December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Balance at the beginning of year
|
|
|
1,503,621
|
|
|
|
2,254,798
|
|
|
|
4,991,223
|
|
Additions
|
|
|
2,650,128
|
|
|
|
5,256,461
|
|
|
|
7,504,977
|
|
Write-offs
|
|
|
(1,898,952
|
)
|
|
|
(2,520,036
|
)
|
|
|
(5,976,606
|
)
|
Balance at the end of year
|
|
|
2,254,797
|
|
|
|
4,991,223
|
|
|
|
6,519,594
|
|
The write-offs in 2013, 2014 and 2015 consisted
of a combination of accounts receivable from individual and corporate customers and travel suppliers.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(6) PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the
following:
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Computer equipment
|
|
|
117,458,085
|
|
|
|
121,225,873
|
|
Furniture and office equipment
|
|
|
12,505,340
|
|
|
|
11,668,389
|
|
Leasehold improvements
|
|
|
16,048,983
|
|
|
|
16,208,551
|
|
Purchased software
|
|
|
33,642,596
|
|
|
|
30,332,813
|
|
Capitalized software development costs
|
|
|
116,453,129
|
|
|
|
140,123,147
|
|
Software development projects in progress
|
|
|
3,210,531
|
|
|
|
225,340
|
|
Less: accumulated depreciation
|
|
|
(186,963,027
|
)
|
|
|
(220,983,909
|
)
|
Property and equipment, net
|
|
|
112,355,637
|
|
|
|
98,800,204
|
|
Depreciation expenses for property and
equipment were RMB33,177,649, RMB41,352,354 and RMB52,067,444, for the years ended December 31, 2013, 2014 and 2015, respectively.
As of December 31, 2014 and 2015,
the Group’s capitalized software development costs, including projects in progress, net of accumulated depreciation of capitalized
software, were RMB42,911,873 and RMB37,306,440, respectively. For the years ended December 31, 2013, 2014, and 2015, the Group
recorded depreciation relating to capitalized software development costs of RMB15,075,396, RMB20,375,208 and RMB26,428,410, respectively.
(7) INVESTMENT IN NON-CONSOLIDATED AFFILIATES
|
|
December 31,
|
|
Cost method investments:
|
|
2014
|
|
|
2015
|
|
2014 Affiliate Company
|
|
|
9,000,000
|
|
|
|
9,000,000
|
|
2014 Second Affiliate Company
|
|
|
6,000,000
|
|
|
|
6,000,000
|
|
2014 Third Affiliate Company
|
|
|
-
|
|
|
|
2,423,934
|
|
2015 Affiliate Company
|
|
|
-
|
|
|
|
15,000,000
|
|
Total carrying value
|
|
|
15,000,000
|
|
|
|
32,423,934
|
|
|
|
December 31,
|
|
Equity method investments:
|
|
2014
|
|
|
2015
|
|
2012 Affiliate Company
|
|
|
75,552,753
|
|
|
|
66,184,775
|
|
2013 Affiliate Company
|
|
|
788,932
|
|
|
|
-
|
|
2014 Third Affiliate Company
|
|
|
5,600,000
|
|
|
|
-
|
|
Total carrying value
|
|
|
81,941,685
|
|
|
|
66,184,775
|
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(7) INVESTMENT IN NON-CONSOLIDATED AFFILIATES - continued
2012 Affiliate Company
In 2012, the Group invested RMB5.6 million
in 2012 Affiliate Company to obtain a 30% equity interest. The Group accounted for the investment in 2012 Affiliate Company using
the equity method and recognized the Group’s share of the net loss of 2012 Affiliate Company on a one-quarter lag basis,
as the financial statements of 2012 Affiliate Company were not available early enough to permit the Group to report its share without
such a lag. In 2012, due to a decline in 2012 Affiliate Company’s financial performance, a reduction in its value was considered
an other-than-temporary impairment under ASC 323, and accordingly the Group’s investment was fully impaired.
In 2013, 2012 Affiliate Company changed
its business focus to property management software development, which was of interest to the Group. As such, in March and December
2014, the Group obtained an additional 19% equity interest through additional investments aggregating RMB76,663,200, of which RMB52,542,000
was recorded as "accrued expenses and other current liabilities" as of December 31, 2014 and was paid off in January
2015.
In 2015, the Group reached an agreement
with an independent party to sell a 2.5% equity interest in 2012 Affiliate Company for cash consideration of RMB13,750,000, and
recognized a disposal gain of RMB10,014,455.
The carrying amount and share of net loss
for investment in 2012 Affiliate Company as of December 31, 2014 and 2015 were as follows:
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Balance at the beginning of the year
|
|
|
-
|
|
|
|
75,552,753
|
|
Investment in non-consolidated affiliate
|
|
|
76,663,200
|
|
|
|
-
|
|
Disposal of investment in non-consolidated affiliate
|
|
|
-
|
|
|
|
(3,735,545
|
)
|
Share of net loss in non-consolidated affiliate
|
|
|
(1,110,447
|
)
|
|
|
(5,632,433
|
)
|
Carrying value at the end of the year
|
|
|
75,552,753
|
|
|
|
66,184,775
|
|
There was no impairment indicator for this
investment in the years ended December 31, 2014 and 2015.
2013 Affiliate Company
On October 17, 2013, the Group acquired
a 10% equity interest in 2013 Affiliate Company for RMB4,500,000, which was paid as of December 31, 2013. Given the Group’s
equity interest and representation on the board of directors of 2013 Affiliate Company, the Group has applied equity method accounting
to account for the investment in 2013 Affiliate Company. The Group recognized Group’s share of the net loss of 2013 Affiliate
Company on a one-quarter lag basis, as the financial statements of 2013 Affiliate Company were not available early enough to permit
the Group to report its share without such a lag.
As the fair values of the investment were
lower than its carrying values, the Group recorded impairment charges of RMB3,413,146 and RMB459,253 as "net income/(loss)
in non-consolidated affiliates" in the consolidated statements of comprehensive loss in the years ended December 31, 2014
and 2015, respectively.
The carrying amounts and share of net loss
for investment in 2013 Affiliate Company as of December 31, 2014 and 2015 were as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Balance at the beginning of the year
|
|
|
4,500,000
|
|
|
|
788,932
|
|
Share of net loss in non-consolidated affiliate
|
|
|
(297,922
|
)
|
|
|
(329,679
|
)
|
Impairment of investment in non-consolidated affiliate
|
|
|
(3,413,146
|
)
|
|
|
(459,253
|
)
|
Carrying value at the end of the year
|
|
|
788,932
|
|
|
|
-
|
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(7) INVESTMENT IN NON-CONSOLIDATED AFFILIATES - continued
2014 Affiliate Company
On July 21, 2014, the Group acquired a
20% equity interest in 2014 Affiliate Company for total cash consideration of RMB9,000,000. The Group applied the cost method to
account for the investment as the investment was not considered to be common equity due to the investment having a substantive
liquidation preference.
2014 Second Affiliate Company
On November 5, 2014, the Group acquired
a 10% equity interest in 2014 Second Affiliate Company for total cash consideration of RMB6,000,000. The Group applied the cost
method to account for the investment due to the Group’s lack of ability to exercise significant influence, and the investment
was not considered common equity due to the investment having a substantive liquidation preference.
There was no impairment indicator for these
two investments in the years ended December 31, 2014 and 2015.
2014 Third Affiliate Company
On December 12, 2014, the Group invested
RMB5,600,000 to acquire a 30% equity interest in 2014 Third Affiliate Company and accounted for this investment using the equity
method. The total cash consideration of RMB5,600,000 was recorded as "accrued expenses and other current liabilities"
in the consolidated balance sheets as of December 31, 2014 and was paid off in January 2015. The Group recognized the Group’s
share of the net loss of 2014 Third Affiliate Company on a one-quarter lag basis, as the financial statements of 2014 Third Affiliate
Company were not available early enough to permit the Group to report its share without such a lag. The Group’s share of
the net loss of 2014 Third Affiliate Company from December 12, 2014 through December 31, 2014 was not material.
On July 20, 2015, the Group disposed of
a 15% equity interest in 2014 Third Affiliate Company for proceeds of RMB5,600,000 and realized a gain of RMB3,176,066 as "net
income/(loss) in non-consolidated affiliates." Upon the completion of the disposition, the Group held a remaining 15% equity
interest in 2014 Third Affiliate Company and switched to cost method accounting for the investment due to the Group's lack of ability
to exercise significant influence. There was no impairment indicator for this investment in the years ended December 31, 2014 and
2015.
The carrying amounts and share of net loss
for investment in 2014 Third Affiliate Company as of December 31, 2014 and 2015 were as follows:
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Balance at the beginning of the year
|
|
|
-
|
|
|
|
5,600,000
|
|
Investment in non-consolidated affiliate
|
|
|
5,600,000
|
|
|
|
-
|
|
Share of net loss in non-consolidated affiliate
|
|
|
-
|
|
|
|
(752,132
|
)
|
Disposal of investment in non-consolidated affiliate
|
|
|
-
|
|
|
|
(2,423,934
|
)
|
Carrying value at the end of the year
|
|
|
5,600,000
|
|
|
|
2,423,934
|
|
2015 Affiliate Company
On April 20, 2015, the Group acquired a 9% of equity interest
in 2015 Affiliate Company for cash consideration of RMB15,000,000. The Group applied the cost method to account for the investment
due to the Group’s lack of ability to exercise significant influence and the investment not being considered common equity
due to the investment having a substantive liquidation preference. There was no impairment indicator for this investment in the
year ended December 31, 2015.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(8) GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents changes in
goodwill:
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Goodwill at the beginning of the year
|
|
|
96,255,546
|
|
|
|
181,322,013
|
|
Additions due to acquisitions
|
|
|
90,590,680
|
|
|
|
2,920,000
|
|
Impairment of goodwill
|
|
|
(5,524,213
|
)
|
|
|
-
|
|
Goodwill at the end of the year
|
|
|
181,322,013
|
|
|
|
184,242,013
|
|
Impairment charge of RMB5,524,213 for goodwill
of the Group’s air business reporting unit was recorded for the year ended December 31, 2014 as the implied fair value
of the air business reporting unit’s goodwill was lower than its carrying amount. No impairment charge for goodwill was recorded
for the years ended December 31, 2013 and 2015.
Intangible assets with definite lives from
acquisitions consisted of the following:
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Customer lists
|
|
|
9,191,240
|
|
|
|
9,701,240
|
|
Trade names
|
|
|
85,912,345
|
|
|
|
47,080,605
|
|
Copyrights
|
|
|
192,000
|
|
|
|
192,000
|
|
Internet domain names
|
|
|
3,903,650
|
|
|
|
3,903,650
|
|
Self-developed software
|
|
|
4,828,942
|
|
|
|
4,828,942
|
|
Others
|
|
|
101,300
|
|
|
|
138,700
|
|
Less: accumulated amortization
|
|
|
(19,380,870
|
)
|
|
|
(40,940,778
|
)
|
Total intangible assets with definite lives, net
|
|
|
84,748,607
|
|
|
|
24,904,359
|
|
Useful lives of intangible assets with definite lives, in years
|
|
|
3-5
|
|
|
|
3-5
|
|
For the years ended December 31, 2013,
2014 and 2015, the Group recorded impairment charges of RMB177,000, nil and RMB40,401,740, respectively. (See Note 3)
Amortization expenses were RMB3,964,862,
RMB8,669,777 and RMB21,225,033, respectively, for the years ended December 31, 2013, 2014 and 2015. The annual estimated amortization
expense of the acquired intangible assets for each of the next five years is as follows:
|
|
Amortization
|
|
2016
|
|
|
8,163,571
|
|
2017
|
|
|
6,423,668
|
|
2018
|
|
|
5,792,386
|
|
2019
|
|
|
4,428,550
|
|
2020
|
|
|
96,184
|
|
Total
|
|
|
24,904,359
|
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(9) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities
consisted of the following:
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Accrued payroll and welfare
|
|
|
59,674,605
|
|
|
|
68,458,147
|
|
Accrued loyalty point program expenses
|
|
|
41,944,880
|
|
|
|
17,629,095
|
|
Accrued commission to third-party distribution partners
|
|
|
30,652,268
|
|
|
|
27,279,013
|
|
Accrued advertisement expenses
|
|
|
10,684,007
|
|
|
|
17,295,688
|
|
Accrued professional fees
|
|
|
11,578,372
|
|
|
|
6,187,344
|
|
Accrued loss on prepurchased hotel inventory with inventory risk
|
|
|
4,162,943
|
|
|
|
5,676,412
|
|
No-show penalties collected from customers on hotels' behalf
|
|
|
14,152,924
|
|
|
|
21,500,634
|
|
Other accrued expenses
|
|
|
28,401,452
|
|
|
|
8,585,321
|
|
Other payables
|
|
|
19,009,543
|
|
|
|
30,887,208
|
|
Business and other taxes
|
|
|
6,000,216
|
|
|
|
24,076,365
|
|
Payable for investments in non-consolidated affiliates
|
|
|
58,142,000
|
|
|
|
-
|
|
Accrued purchase consideration
|
|
|
7,907,229
|
|
|
|
-
|
|
Total accrued expenses and other current liabilities
|
|
|
292,310,439
|
|
|
|
227,575,227
|
|
(10) INCOME TAXES
The Company, its subsidiaries and VIEs
file separate income tax returns.
Cayman
Under the current laws of the Cayman Islands,
the Company is not subject to tax on the Company’s income or capital gains. In addition, no Cayman Islands withholding tax
is imposed upon any payments of dividends.
PRC
In 2007, the PRC enacted a new Corporate
Income Tax Law ("CIT Law") and promulgated related regulations, effective January 1, 2008, which impose a unified
corporate income tax ("CIT") rate of 25% for both domestic and foreign invested enterprises. Enterprises qualified as
"High New Technology Enterprises ("HNTEs") enjoy a preferential CIT rate of 15%.
eLong Information was qualified as an HNTE
in 2008 under the CIT Law. As a result of renewals of its HNTE status in 2011 and 2014, respectively, eLong Information has been
and will be entitled to a reduced CIT rate of 15% through 2016.
The CIT Law also imposes a 10% withholding
income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside the PRC. The 10%
withholding tax rate can be reduced based on tax arrangements or treaties between the PRC and other jurisdictions. Undistributed
earnings generated before January 1, 2008 are exempted from withholding tax when such earnings are distributed to the foreign investor
in 2008 or thereafter. The Group’s foreign invested subsidiaries and its VIEs are permanently reinvesting their earnings
and, as such, under ASC subtopic 740-30,
Income Taxes: Other Considerations or Special Areas
, the Company has not recorded
deferred tax liabilities on the outside basis in its foreign invested subsidiaries and VIEs. The cumulative amounts of the undistributed
earnings related to investments in foreign subsidiaries and VIEs were RMB23 million and nil as of December 31, 2014 and 2015, respectively.
It is not practicable for the Group to estimate the amount of unrecognized deferred tax liabilities as of December 31, 2015.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(10) INCOME TAXES - continued
The Group’s consolidated loss before
income tax expense consisted of:
|
|
For the year ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Non-PRC
|
|
|
(8,751,310
|
)
|
|
|
(49,255,016
|
)
|
|
|
(273,416,033
|
)
|
PRC
|
|
|
(104,217,319
|
)
|
|
|
(208,848,135
|
)
|
|
|
(768,939,163
|
)
|
Total
|
|
|
(112,968,629
|
)
|
|
|
(258,103,151
|
)
|
|
|
(1,042,355,196
|
)
|
Income tax expense attributable
to loss from operations consisted of:
|
|
For the year ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Current income tax expense/(benefit)
|
|
|
30,828,412
|
|
|
|
(3,810,926
|
)
|
|
|
20,040,148
|
|
Deferred income tax (benefit)/expense
|
|
|
28,651,891
|
|
|
|
16,905,027
|
|
|
|
(7,127,238
|
)
|
Total
|
|
|
59,480,303
|
|
|
|
13,094,101
|
|
|
|
12,912,910
|
|
The significant components of deferred
income tax expense/(benefit) attributable to losses from operations for the years ended December 31, 2013, 2014 and 2015 were
as follows:
|
|
For the year ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Deferred income tax benefit (excluding increase in the valuation allowance for deferred tax assets)
|
|
|
(62,942,286
|
)
|
|
|
(8,662,935
|
)
|
|
|
(155,367,793
|
)
|
Increase in the valuation allowance for deferred tax assets
|
|
|
91,594,177
|
|
|
|
25,567,962
|
|
|
|
148,240,555
|
|
Deferred income tax expense/(benefit)
|
|
|
28,651,891
|
|
|
|
16,905,027
|
|
|
|
(7,127,238
|
)
|
Income tax expense differed from the amounts
computed by applying the PRC corporate income tax rate of 25% for 2013, 2014 and 2015 to the Group’s pretax losses from operations
as a result of the following:
|
|
For the year ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Computed expected tax benefit at PRC statutory rates
|
|
|
(28,242,157
|
)
|
|
|
(64,525,788
|
)
|
|
|
(260,588,800
|
)
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in the valuation allowance for deferred tax assets allocated to income tax expense
|
|
|
91,594,177
|
|
|
|
25,567,962
|
|
|
|
148,240,555
|
|
Adjustment to deferred tax assets and liabilities for changes in enacted tax rates
|
|
|
(20,260,561
|
)
|
|
|
30,995,134
|
|
|
|
-
|
|
Expired net operating loss carry forwards
|
|
|
30,020
|
|
|
|
41,491
|
|
|
|
33,957
|
|
Effect of differing tax rates in jurisdictions inside the PRC
|
|
|
10,949,401
|
|
|
|
11,853,475
|
|
|
|
60,263,272
|
|
Effect of differing tax rates in jurisdictions outside PRC
|
|
|
2,187,827
|
|
|
|
12,313,754
|
|
|
|
68,354,008
|
|
Prior year tax return true up
|
|
|
(624,609
|
)
|
|
|
(4,482,916
|
)
|
|
|
(8,238,012
|
)
|
Non deductible entertainment expenses
|
|
|
249,362
|
|
|
|
371,541
|
|
|
|
457,597
|
|
Non deductible allowance for doubtful accounts
|
|
|
685,320
|
|
|
|
1,375,008
|
|
|
|
2,404,003
|
|
Non deductible share-based compensation cost
|
|
|
709,413
|
|
|
|
159,566
|
|
|
|
819,472
|
|
PRC tax payment after examination
|
|
|
1,863,825
|
|
|
|
-
|
|
|
|
-
|
|
Others
|
|
|
338,285
|
|
|
|
(575,126
|
)
|
|
|
1,166,858
|
|
Income tax expense
|
|
|
59,480,303
|
|
|
|
13,094,101
|
|
|
|
12,912,910
|
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(10) INCOME TAXES - continued
Under the PRC Tax Administration and Collection
Law, the statute of limitations is three years for underpayment of taxes due to computational errors made by the taxpayer or the
withholding agent. The statute of limitations may be extended to five years under special circumstances, which are not clearly
defined. In the case of transfer pricing issues, the statute of limitations is ten years. There is no statute of limitations in
the case of tax evasion. The Group did not have any unrecognized tax benefits for the year ended December 31, 2015. No significant
interest or penalty related to unrecognized uncertain tax positions was recorded in the 2013, 2014 and 2015 consolidated financial
statements. The Group’s management does not expect the amount of unrecognized tax benefits to increase significantly during
the year ending December 31, 2016.
The tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below.
Deferred tax assets, current
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Deferred tax assets, current:
|
|
|
|
|
|
|
|
|
eCoupon program virtual cash liability
|
|
|
35,522,328
|
|
|
|
35,538,632
|
|
Accrued expenses
|
|
|
7,076,715
|
|
|
|
4,639,154
|
|
Total gross deferred tax assets, current
|
|
|
42,599,043
|
|
|
|
40,177,786
|
|
Less: valuation allowance
|
|
|
(42,294,669
|
)
|
|
|
(40,177,786
|
)
|
Net deferred tax assets, current
|
|
|
304,374
|
|
|
|
-
|
|
Deferred tax assets, non-current
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Deferred tax assets, non-current:
|
|
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
|
19,664,857
|
|
|
|
170,029,284
|
|
Property and equipment
|
|
|
(124,775
|
)
|
|
|
2,639,780
|
|
Impairment of investment in non-consolidated affiliate
|
|
|
6,083,848
|
|
|
|
4,039,503
|
|
Advertising and promotional fees
|
|
|
48,948,486
|
|
|
|
47,705,667
|
|
Total gross deferred tax assets, non-current
|
|
|
74,572,416
|
|
|
|
224,414,234
|
|
Less: valuation allowance
|
|
|
(74,056,796
|
)
|
|
|
(224,414,234
|
)
|
Net deferred tax assets, non-current
|
|
|
515,620
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, non-current:
|
|
|
|
|
|
|
|
|
Acquired intangible assets in business combination
|
|
|
21,148,963
|
|
|
|
14,021,725
|
|
Software capitalization
|
|
|
37,919
|
|
|
|
37,919
|
|
Total deferred tax liabilities,
non-current
|
|
|
21,186,882
|
|
|
|
14,059,644
|
|
The gross amounts of operating loss carryforwards
which will expire between 2016 and 2020 are as follows: RMB6,847,027 in 2016, RMB4,442,566 in 2017, RMB1,388,389 in 2018,RMB131,126,039
in 2019 and RMB864,281,306 in 2020.
In assessing the realization of deferred
tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in
which the temporary differences become deductible or utilized. The Group considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this assessment. Based upon an assessment of the level of
historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible
or can be utilized, management has provided valuation allowances of RMB116,351,465 and RMB264,592,020 as at December 31, 2014
and 2015, respectively.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(11) COMMITMENTS AND CONTINGENCIES
Operating lease commitments
The Group has several operating leases,
primarily for offices and employee dormitories. Payments under operating leases, including periodic rent escalation and rent holidays,
are expensed on a straight-line basis over the lease term.
Future minimum lease payments under operating
leases (with initial or remaining lease terms in excess of one year) as of December 31, 2015 are:
|
|
Minimum
lease
payments
|
|
2016
|
|
|
19,800,434
|
|
2017
|
|
|
15,970,491
|
|
2018
|
|
|
12,942,353
|
|
2019
|
|
|
4,345,105
|
|
2020
|
|
|
2,858,602
|
|
2021 and thereafter
|
|
|
4,168,794
|
|
Total
|
|
|
60,085,779
|
|
Rental expenses incurred under operating
leases for the years ended December 31, 2013, 2014 and 2015 were RMB20,847,571, RMB23,876,891 and RMB28,416,459, respectively.
Purchase commitments
The Company entered into series of
agreements with hotels to prepurchase hotel room nights and assume inventory risk, pursuant to which the Company commits to make
minimum payments for such purchases as follows:
|
|
Minimum
purchase
payments
|
|
2016
|
|
|
13,403,603
|
|
2017
|
|
|
2,318,589
|
|
Total
|
|
|
15,722,192
|
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(11) COMMITMENTS AND CONTINGENCIES - continued
Contingencies
In 2013, a Group subsidiary filed a lawsuit
against Beijing Qunar Software Technology Co., Ltd. ("Beijing Qunar"), a subsidiary of the travel-search company Qunar
Cayman Islands Limited, alleging breach of contract, and seeking total damages of approximately RMB151 million. Beijing Qunar filed
a counterclaim against the Group subsidiary seeking approximately RMB8.1 million for unpaid commission payments, which had been
held back by the Group’s subsidiary. The Group recorded the withheld commissions in "accrued expense and other current
liabilities" in the consolidated balance sheets as of December 31, 2013 and 2014.
On
December 26, 2014, the Beijing First Intermediate Court ("the Court") issued a judgment in favor of eLong
Information, ordering Beijing Qunar to resume cooperation with eLong Information and abide by the original contract terms by
compensating eLong Information with advertising credit as required by the contract. The Court also ordered eLong Information
to pay Beijing Qunar RMB8.1 million for the withheld commissions. In January 2015, both Beijing Information and Beijing Qunar
appealed the Court’s judgment to the Beijing Municipal High Court (the "High Court"). Since the Group could
not predict the timing or ultimate outcome of the appeals, the Group did not recognize any contingent gain in the year ended
December 31, 2014. In June 2015, the High Court issued a final judgment, pursuant to which, (1) the Group is required to pay
approximately RMB8.1 million for the unpaid commissions; (2) Beijing Qunar is required to compensate eLong Information by
providing approximately RMB88.8 million in credit to eLong Information’s advertising account at Beijing Qunar; (3)
Beijing Qunar is required to provide to eLong Information advertising credit of RMB27 per room night if Beijing Qunar fails
to meet the room night target of 450,000 PRC domestic hotel room nights per quarter from July 1, 2015 through June 30, 2016,
as specified in the original contract. In the year ended December 31, 2015, Beijing Information was entitled to
receive approximately RMB113 million in total advertising credit, which, pursuant to ASC 605-50,
Customer payment and
Incentive,
was initially recorded as a deduction from "sales and marketing expenses" and was subsequently
expensed when consumed. The value of unused advertising credit as of December 31, 2015 was recorded as "amount due from
related parties" in the consolidated balance sheet (see note 17).
Guarantee
In connection with the Group's air ticket
business, the Group was required by the Civil Air Transport Association and the International Air Transport Association to pay
deposits or to provide other guarantees in order for the issuance of air tickets. As of December 31, 2015 the account under these
guarantee arrangements was approximately RMB208.5 million of which approximately RMB122.5 million and approximately RMB38.0 million
were deposited and recorded as restricted cash and other non-current assets, respectively in the consolidated balance sheet; and
RMB40 million and RMB8 million were provided in the form of a line of credit offered by a PRC commercial bank and a guarantee letter
to the guarantor with a maturity date on December 31, 2016.
In connection with the Group's accommodation
reservation business operated by Shenzhen JL, Shenzhen JL was required by certain hotels to provide guarantees
of timely payment. As of December 31, 2015, a guarantee of approximately RMB14.7 million had been provided in the form of guarantee
letters issued by commercial banks, which required deposits of the same amount at the commercial banks. Out of such deposits, approximately
RMB12.5 million and approximately RMB2.2 million were recorded as restricted cash and prepaid expenses, respectively in the consolidated
balance sheet as of December 31, 2015.
Based on historical experience and information
currently available, the Group does not believe that it is probable that the Group will be required to pay any amount under these
guarantee arrangements. Therefore, the Group has not recorded any liability in connection with these guarantee arrangements.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(12) SHARE-BASED COMPENSATION
Share options
In April 2001, the Company adopted
a share option plan (the "2001 Plan") pursuant to which the Company may grant share options to selected directors, officers,
key employees and consultants of the Group. On August 26, 2003, the Company increased the number of ordinary shares authorized
to be issued under the 2001 Plan from 4,000,000 to 5,500,000.
In July 2004, the Company adopted
a share and annual incentive plan (the "2004 Plan") that allows the Company to grant share options, share appreciation
rights, restricted shares or restricted share units to officers, employees, directors or consultants of the Group up to a maximum
of 4,000,000 ordinary shares. On December 13, 2006, the Company amended the 2004 Plan to allow the grant of restricted share
units to non-employees.
In May 2009, the Company adopted a
share and annual incentive plan (the "2009 Plan") that allows the Company to grant share options, share appreciation
rights, restricted shares or restricted share units to officers, employees, directors or consultants of the Group up to an aggregate
of 3,000,000 ordinary shares. On December 30, 2009, the 2009 Plan was amended to allow equity grants to members of the Company’s
Board of Directors. On March 17, 2011, the Company amended the 2009 Plan to increase the maximum number of ordinary shares
authorized to be issued to 6,000,000, and the maximum number of authorized shares was further increased to 12,000,000 and 17,000,000
on April 24, 2012 and September 18, 2013, respectively.
The total fair values of share options
vested during the years ended December 31, 2013, 2014 and 2015 were RMB5,144,179, RMB11,881,819 and RMB6,105,016,
respectively.
Share options granted under the 2001 Plan
expire in ten years and options granted under the 2004 Plan expire in five or ten years, and generally vest and become exercisable
ratably over three to five years from the date of grant. Options granted under the 2009 Plan generally expire in five years and
vest and become exercisable over one to three years from the date of grant.
The assumptions used to determine the grant
date fair values of share options granted during 2013 included expected volatility
of
57%,
an expected dividend rate of 0%, a risk-free interest rate of 0.33% and an expected life of 2.31 years. There was no share option
activity under the 2001 Plan during the years ended December 31, 2014 and 2015.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(12) SHARE-BASED COMPENSATION - continued
Share options - continued
A summary of share option activity under
the 2004 Plan for the year ended December 31, 2015 is as follows:
|
|
Number
of
Ordinary
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregated
Intrinsic
Value (In
thousands)
|
|
Outstanding at December 31, 2014
|
|
|
221,112
|
|
|
US$
|
6.38
|
|
|
|
|
|
|
|
Exercised
|
|
|
(165,312
|
)
|
|
US$
|
5.55
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
55,800
|
|
|
US$
|
8.82
|
|
|
4.93 years
|
|
US$
|
-
|
|
Vested and expected to vest at December 31, 2015
|
|
|
55,800
|
|
|
US$
|
8.82
|
|
|
4.93 years
|
|
US$
|
-
|
|
Exercisable at December 31, 2015
|
|
|
55,800
|
|
|
US$
|
8.82
|
|
|
4.93 years
|
|
US$
|
-
|
|
A summary of share option activity under
the 2009 Plan for the year ended December 31, 2015 is as follows:
|
|
Number
of Ordinary
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregated
Intrinsic
Value (In
thousands)
|
|
Outstanding at December 31, 2014
|
|
|
751,027
|
|
|
US$
|
7.69
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(438,474
|
)
|
|
US$
|
7.31
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(55,770
|
)
|
|
US$
|
8.71
|
|
|
|
|
|
|
|
|
|
Repurchased
|
|
|
(83,552
|
)
|
|
US$
|
8.02
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(45,518
|
)
|
|
US$
|
8.20
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
127,713
|
|
|
US$
|
8.14
|
|
|
|
0.91 years
|
|
|
US$
|
64
|
|
Vested and expected to vest at December 31, 2015
|
|
|
58,824
|
|
|
US$
|
7.88
|
|
|
|
0.63 years
|
|
|
US$
|
51
|
|
Exercisable at December 31, 2015
|
|
|
58,824
|
|
|
US$
|
7.88
|
|
|
|
0.63 years
|
|
|
US$
|
51
|
|
In June 2014, the Company enacted a voluntary
program which allowed certain employees to exchange certain share options which were previously vested or expected to vest for
a lesser number of new restricted share units at a ratio of one share option to 0.8 restricted share units, pursuant to which 307,128
share options under the 2009 Plan were cancelled in exchange for new restricted share units in 2014.
The aggregated intrinsic value of share
options outstanding and exercisable at December 31, 2015 was calculated based on the closing price of the Company’s
ADSs on December 31, 2015 of US$17.11 per ADS (equivalent to US$8.555 per ordinary share). The total intrinsic values of share
options exercised during the years ended December 31, 2013, 2014 and 2015 were US$3.0 million, US$1.6 million and
US$2.1 million, respectively.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(12) SHARE-BASED COMPENSATION - continued
The following table presents
a summary of the Company’s share options outstanding and exercisable at December 31, 2015:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise
Prices
|
|
Ordinary
Shares
|
|
|
Weighted
Average Price
Per Ordinary
Share
|
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
|
Ordinary
Shares
|
|
|
Weighted
Average
Exercise
Price Per
Ordinary
Share
|
|
$ 2.01 - $ 4.00
|
|
|
4
|
|
|
$
|
3.18
|
|
|
|
-
|
|
|
|
4
|
|
|
$
|
3.18
|
|
$ 4.01 - $ 6.00
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
$ 6.01 - $ 8.00
|
|
|
35,096
|
|
|
$
|
6.87
|
|
|
|
0.34
|
|
|
|
29,397
|
|
|
$
|
6.85
|
|
$ 8.01 - $10.00
|
|
|
141,745
|
|
|
$
|
8.63
|
|
|
|
2.65
|
|
|
|
78,555
|
|
|
$
|
8.73
|
|
$10.01 - $12.00
|
|
|
6,668
|
|
|
$
|
10.26
|
|
|
|
0.60
|
|
|
|
6,668
|
|
|
$
|
10.26
|
|
Total
|
|
|
183,513
|
|
|
$
|
8.35
|
|
|
|
2.13
|
|
|
|
114,624
|
|
|
$
|
8.34
|
|
Restricted share units
Restricted share units are rights to receive
the Company’s ordinary shares, or in the case of grants to the Company’s independent directors, a cash award linked
to the Company’s ordinary share value. Restricted share units generally vest over a two to five-year period, and are not
entitled to dividends or voting rights.
On May 22, 2015, the composition of the
Company's Board of Directors was changed, with the designees of Expedia and the three independent directors resigning from the
Board. Immediately before the resignations, the Board of Directors approved the vesting and cash settlement of unvested restricted
share units held by the resigning directors for a price of $14.635 per restricted share unit.
On May 22, 2015, the Company's Board of
Directors approved the modification of share options and restricted share units previously granted to Mr. Guangfu Cui, former CEO
of the Company, pursuant to which 1,526,466 then-unvested restricted share units became fully vested on May 22, 2015, 1,059,128
then-unvested restricted share units became vested on November 22, 2015, and 1,059,128 then-unvested restricted share units became
vested on November 22, 2015 but were not exercisable until May 22, 2016. The share-based compensation expense arising from such
modification of approximately RMB120.5 million was recognized in the statements of comprehensive loss for the year ended December
31, 2015. In addition, on May 22, 2015, pursuant to an agreement reached between Mr. Cui and Ctrip and C-Travel, Mr. Cui sold
1,588,692 ordinary shares held by him to C-Travel for a price of $14.635 per share. The aggregate difference between the sales
price and the market price on May 22, 2015 of RMB22.1 million was recognized in the consolidated statements of comprehensive loss
for the year ended December 31, 2015. C-Travel also granted the option to Mr. Cui to exchange 529,564 ordinary shares issued by
the Company for 27,679 ordinary shares issued by Ctrip, which Mr. Cui exercised on November 22, 2015. The fair value of the
exchange right of approximately RMB23.7 million was recorded in the consolidated statements of comprehensive loss for the year
ended December 31, 2015.
On June 1, 2015, the Company entered into
amendments to certain share option agreements and restricted share unit agreements with certain employees of the Company who held
options or restricted share units that were not vested as of May 27, 2015. These amendments (1) provided a revised vesting schedule
and vesting conditions and (2) granted to such employees a right (the "Put Options") to sell to the Company the ordinary
shares (the "Put Shares") issued upon vesting (including accelerated vesting) of certain installments of then-unvested
options and restricted share units held by such employees, for a price of $14.635 per Put Share. Pursuant to these amendments,
740,226 then-unvested restricted share units and share options were repurchased by the Company for a price of $14.635 per share
on May 27, 2015. On August 1, 2015, the Company made additional amendments of the vesting conditions for unvested restricted share
units held by certain employees. As a result of series of the amendments, unvested restricted share units, other than those that
were repurchased by the Company, became subject to vesting in two equal installments on May 26, 2016 and 2017. The total share-based
compensation expense arising from such modifications was approximately RMB84.5 million, of which approximately RMB67.5 million
was recognized in the year ended December 31, 2015 and the remaining portion will be recognized over the next two years.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(12) SHARE-BASED COMPENSATION - continued
Restricted share units-continued
In 2015, immediately before the resignation
of certain members of the Company’s senior management, the Company repurchased 253,804 then-unvested restricted share units
and share options held by such members of senior management for a price of $14.635 per share. The share-based compensation expense
of approximately RMB12.3 million arising from such repurchases was recognized in the year ended December 31, 2015.
The cost of restricted share unit awards
is determined using the fair value, net of expected forfeitures. Compensation cost for restricted share units settled in ordinary
shares is recognized on a straight-line basis over the vesting term of each tranche.
As of December 31, 2014 and 2015,
the balances of cash-settled restricted share units were RMB1,600,040 and nil, respectively. The balance as of December 31, 2014
was included in "accrued expenses and other current liabilities" and was revalued each reporting period with changes
in fair value recorded as share-based compensation cost.
A summary of equity-settled restricted
share unit activity under the 2009 Plan for the year ended December 31, 2015 is as follows:
|
|
Number of Ordinary Shares
|
|
|
Weighted average
grant date fair value
|
|
Balance at December 31, 2014
|
|
|
6,156,728
|
|
|
US$
|
8.09
|
|
Granted
|
|
|
2,619,913
|
|
|
US$
|
8.49
|
|
Settled
|
|
|
(2,731,726
|
)
|
|
US$
|
8.16
|
|
Forfeited
|
|
|
(1,197,022
|
)
|
|
US$
|
8.07
|
|
Repurchased
|
|
|
(910,478
|
)
|
|
US$
|
8.02
|
|
Balance at December 31, 2015
|
|
|
3,937,415
|
|
|
US$
|
8.33
|
|
Vested and expected to vest at December 31, 2015
|
|
|
3,714,091
|
|
|
US$
|
8.24
|
|
The total fair values of shares issued
upon settlement of vested restricted share units during the years ended December 31, 2013, 2014and 2015 were RMB33,268,711, RMB64,204,363
and RMB182,753,314, respectively.
A summary of cash-settled restricted share
unit activity under the 2004 Plan for the year ended December 31, 2015 is as follows:
|
|
Number of Ordinary Shares
|
|
Balance at December 31, 2014
|
|
|
83,580
|
|
Settled
|
|
|
(73,128
|
)
|
Forfeited
|
|
|
(10,452
|
)
|
Balance at December 31, 2015
|
|
|
-
|
|
RMB816,978, RMB1,496,087 and RMB4,085,109
was paid to settle cash-settled restricted share units in the years ended December 31, 2013, 2014, and 2015, respectively.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(12) SHARE-BASED COMPENSATION - continued
Restricted share units-continued
As of December 31, 2015, there was a total
of RMB103,372,410 unrecognized compensation cost related to unvested share options and restricted share units to be recognized
over a weighted-average remaining vesting period of 2.35 years. Total unrecognized compensation cost may be adjusted for future
changes in estimated forfeitures.
Certain Group subsidiaries have equity
incentive plans granting share-based awards to employees. Total share-based compensation expenses recognized and unrecognized under
these plans were insignificant, both individually and in the aggregate, for any of the years presented.
Share-based compensation expense for the
years ended December 31, 2013, 2014 and 2015 was included in cost of services and expense items as follows
:
|
|
For the year ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Cost of services
|
|
|
2,672,546
|
|
|
|
3,089,376
|
|
|
|
5,912,480
|
|
Service development
|
|
|
19,563,206
|
|
|
|
25,940,853
|
|
|
|
54,683,731
|
|
Sales and marketing
|
|
|
8,137,223
|
|
|
|
5,421,774
|
|
|
|
4,226,600
|
|
General and administrative
|
|
|
32,965,113
|
|
|
|
63,223,288
|
|
|
|
222,719,945
|
|
Total
|
|
|
63,338,088
|
|
|
|
97,675,291
|
|
|
|
287,542,756
|
|
(13) ORDINARY SHARES
On May 22, 2015, C-Travel, Luxuriant, Keystone
and Plateno (collectively, the "Purchasers") entered into a share purchase agreement with Expedia and Expedia Asia Pacific
pursuant to which the Purchasers purchased from Expedia Asia Pacific 17,290,943 ordinary shares and 28,550,704 high-vote ordinary
shares of the Company for a price of $14.635 per share. On August 17, 2015, Ocean Imagination L.P. ("Ocean Imagination")
became a record holder of 6,185,649 ordinary shares and 10,213,708 high-vote ordinary shares of the Company after such shares were
contributed to it by Keystone and Plateno in exchange for limited partnership interests in Ocean Imagination.
Ordinary and high-vote ordinary shares
vote together as a single class on all matters submitted to a shareholder vote, and the rights of the ordinary shares and high-vote
ordinary shares are the same, except that each high-vote ordinary share is entitled to 15 votes, whereas each ordinary share is
entitled to one vote.
To facilitate the employee share option
exercise and restricted share unit settlement process, the Company issues depositary shares to certain brokers. These shares are
not considered outstanding until ADSs are issued to employees as a result of the exercise of share options or the vesting and settlement
of restricted share units. As of December 31, 2014 and 2015, 1,577,926 and 229,568 depositary shares, respectively, were issued
to brokers and not to the holders of the related share-based awards.
(14)
NON-CONTROLLING INTERESTS
Non-controlling interests include the common
shares in the consolidated VIE's subsidiaries. The balance is summarized as follows:
|
|
December 31,
|
|
|
|
2014
|
|
|
2015
|
|
Balance at the beginning of the year
|
|
|
19,096,248
|
|
|
|
76,649,577
|
|
2013 Acquired Company
|
|
|
(3,926,697
|
)
|
|
|
(6,620,337
|
)
|
Shenzhen JL
|
|
|
60,605,096
|
|
|
|
(40,387,073
|
)
|
Nanjing Xici
|
|
|
748,440
|
|
|
|
(2,196,459
|
)
|
Other
|
|
|
126,490
|
|
|
|
64,319
|
|
Carrying value at the end of the year
|
|
|
76,649,577
|
|
|
|
27,510,027
|
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(15) NET LOSS PER SHARE
Basic and diluted net loss per share has
been calculated as follows:
|
|
For the year ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Net loss attributable to eLong, Inc.
|
|
|
(167,730,074
|
)
|
|
|
(268,943,201
|
)
|
|
|
(1,015,229,541
|
)
|
Denominator for basic net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
69,454,746
|
|
|
|
70,917,592
|
|
|
|
73,300,491
|
|
Denominator for diluted net loss per share:
|
|
|
69,454,746
|
|
|
|
70,917,592
|
|
|
|
73,300,491
|
|
Basic net loss per share
|
|
|
(2.41
|
)
|
|
|
(3.79
|
)
|
|
|
(13.85
|
)
|
Diluted net loss per share
|
|
|
(2.41
|
)
|
|
|
(3.79
|
)
|
|
|
(13.85
|
)
|
(16) RISKS AND CONCENTRATION
Credit and concentration risks
The carrying amounts of cash and cash equivalents,
restricted cash, short-term investments, and accounts receivable represent the Group’s maximum exposure to credit risk in
relation to financial assets. As of December 31, 2014 and 2015, substantially all of the Group’s cash and cash equivalents,
restricted cash and short-term investments were held in banks located in the PRC, Hong Kong Special Administrative Region, the
Macau Special Administrative Region and the United States. Accounts receivable are typically unsecured and denominated in RMB,
and are derived from revenues earned from operations arising in the PRC. The Group performs ongoing credit evaluations of its customers’
financial condition and generally does not require collateral on accounts receivable. The Group maintains an allowance for doubtful
accounts and actual losses have been within management’s expectations.
The Group has a diversified base of customers.
No individual customer contributed more than 10% of total revenues for the years ended December 31, 2013, 2014 and 2015. No
individual customer accounted for more than 10% of accounts receivable as of December 31, 2014 and 2015.
The Group has significant reliance on the
Travelsky GDS system for the air business, the Baidu search engine for online search engine marketing for the accommodation reservation
business, large airlines and hotel chains to supply the Group with air ticket and hotel inventory for redistribution to the Group’s
customers, telecommunications, internet infrastructure and utility service providers which if disruptive could have significant
impact to the Group’s businesses. The Group does not have concentrations of available sources of labor, services, franchises,
licenses or other rights that could, if suddenly eliminated, severely impact its operations.
Business and economic risks
The Group’s business is subject to
certain risks and concentrations including risks relating to the condition of the economy, outbreak of disease or the occurrence
of natural or man-made disasters, dependence on relationships with travel suppliers, primarily hotels and airlines, dependence
on third-party technology, internet service, utility services and telecommunications providers, exposure to risks associated with
online commerce security, data privacy, online payment and credit card fraud.
The Group conducts substantially all of
its operations in the PRC and accordingly is subject to special considerations and significant risks not typically associated with
companies operating in the United States. These include risks associated with, among others, the social, political, economic and
legal environment in the PRC, and competition in the travel industry.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(16) RISKS AND CONCENTRATION - continued
Business disruption and disaster risks
The Group maintains customer service center
facilities in Beijing and Hefei. Substantially all of the Group’s computer and communications systems are located in Beijing
and Hefei, and are vulnerable to damage or interruption from man-made or natural causes. The Group does not carry business interruption
insurance to compensate for any such losses that may occur. Any business disruption or disaster may result in substantial costs
and diversion of resources, which may have a material adverse effect on the Group’s operations and results.
Foreign exchange risk
The value of the Renminbi against the U.S.
dollar and other currencies fluctuates and is affected by, among other things, changes in political and economic conditions in
the PRC and the United States. The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by
the PBOC or commercial banks in Hong Kong Special Administrative Region. Currently, the RMB is permitted to fluctuate within a
narrow and managed band against a basket of certain foreign currencies. In the future, the PRC government may adopt a more flexible
currency policy, which could result in increased exchange rate volatility and a significant appreciation or depreciation of the
RMB against the U.S. dollar.
Substantially all of the Group’s
revenue-generating operations are transacted in Renminbi. If the Renminbi appreciates or depreciates, the Group will record foreign
exchange losses or gains on United States dollar-denominated assets and liabilities. In addition, any changes in the value of the
Renminbi may materially and adversely affect the value in foreign currency terms of our ADSs.
(17) RELATED PARTY TRANSACTIONS
The principal related party transactions
for the years ended December 31, 2013, 2014 and 2015 are summarized below:
|
|
|
|
For the year ended December 31,
|
|
|
|
Note
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Commission, advertising, non-compete waiver compensation revenues and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expedia and its affiliates
|
|
(i)
|
|
|
98,197,631
|
|
|
|
111,178,168
|
|
|
|
56,541,768
|
|
Ctrip and its affiliates
|
|
(ii)
|
|
|
-
|
|
|
|
-
|
|
|
|
9,532,316
|
|
Plateno and its affiliated hotels
|
|
(iii)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,770,880
|
|
Shenzhen JL
|
|
(vii)
|
|
|
9,032,926
|
|
|
|
9,519,281
|
|
|
|
-
|
|
Others
|
|
|
|
|
92,340
|
|
|
|
352,541
|
|
|
|
-
|
|
Total
|
|
|
|
|
107,322,897
|
|
|
|
121,049,990
|
|
|
|
71,844,964
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
Note
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
Commission, advertising, bad debt provision and other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expedia and its affiliates
|
|
(i)
|
|
|
14,827,775
|
|
|
|
98
|
|
|
|
-
|
|
Ctrip and its affiliates
|
|
(ii)
|
|
|
-
|
|
|
|
-
|
|
|
|
7,377,809
|
|
Tencent and its affiliates
|
|
(iv)
|
|
|
5,281,854
|
|
|
|
1,398,505
|
|
|
|
5,701,053
|
|
Jiuyou
|
|
(vi)
|
|
|
63,171,034
|
|
|
|
45,348,211
|
|
|
|
2,414,967
|
|
Others
|
|
|
|
|
6,048,888
|
|
|
|
3,399,684
|
|
|
|
322,104
|
|
Total
|
|
|
|
|
89,329,551
|
|
|
|
50,146,498
|
|
|
|
15,815,933
|
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(17) RELATED PARTY TRANSACTIONS - continued
The
balances
between the Group and
its
related parties
as of December
31, 2014 and 2015 are summarized below:
Amount due from related parties:
|
|
|
|
December 31,
|
|
|
|
Note
|
|
2014
|
|
|
2015
|
|
Expedia and its affiliates
|
|
(i)
|
|
|
34,002,981
|
|
|
|
-
|
|
Ctrip and its affiliates
|
|
(ii)
|
|
|
-
|
|
|
|
96,996,695
|
|
Plateno and its affiliated hotels
|
|
(iii)
|
|
|
-
|
|
|
|
322,873
|
|
Tencent and its affiliates
|
|
(iv)
|
|
|
16,952,232
|
|
|
|
28,460,064
|
|
Qunar and its affiliates
|
|
(v)
|
|
|
-
|
|
|
|
90,550,547
|
|
Others
|
|
|
|
|
1,065,883
|
|
|
|
4,000
|
|
Amounts due from related parties
|
|
|
|
|
52,021,096
|
|
|
|
216,334,179
|
|
Amount due to related parties:
|
|
|
|
December 31,
|
|
|
|
Note
|
|
2014
|
|
|
2015
|
|
Expedia and its affiliates
|
|
(i)
|
|
|
127,471,578
|
|
|
|
-
|
|
Ctrip and its affiliates
|
|
(ii)
|
|
|
-
|
|
|
|
34,515,489
|
|
Plateno and its affiliated hotels
|
|
(iii)
|
|
|
-
|
|
|
|
653,959
|
|
Tencent and its affiliates
|
|
(iv)
|
|
|
369,645
|
|
|
|
340,847
|
|
Others
|
|
|
|
|
69,047
|
|
|
|
997,823
|
|
Amounts due to related parties
|
|
|
|
|
127,910,270
|
|
|
|
36,508,118
|
|
(i) The Group entered into a series of
collaboration agreements with Expedia and its affiliates for cooperation in the accommodation reservation business, transportation
ticketing business and advertising services. Pursuant to these agreements, the Group was entitled (1) to receive revenue sharing
from Expedia and its affiliates for accommodation reservation business and transportation ticketing business; (2) to earn revenue
for the advertising services rendered to Expedia and its affiliates; and (3) to receive payments from Expedia in return for the
Group’s waiver of certain non-competition covenants of Expedia. As described in Note 1, on May 22, 2015, Expedia sold all
of its equity interest in the Group to the Purchasers. Upon the completion of this transaction, all designees of Expedia resigned
from the board of directors of the Company. As a result, Expedia and its affiliates ceased to be related parties of the Group.
(ii) Beginning when C-Travel became a shareholder
of the Company in May 2015, the Company entered into a series of business collaboration agreements with affiliates of Ctrip pursuant
to which (1) the Company distributes travel products provided by Ctrip’s affiliates and receives a share of the Ctrip affiliates’
commissions for the travel products; and (2) Ctrip distributes travel products provided by the Company and receives a share of
the Company’s commissions for the travel products.
(iii) Both before and after May 22, 2015,
when Plateno became a shareholder of the Company, the Group entered into a series of distribution agreements with hotels affiliated
with Plateno, which is an affiliate of Ocean Imagination L.P. Pursuant to these agreements, the Group provides accommodation reservation
services to the hotels affiliated with Plateno and receives commissions from them for accommodation reservations booked through
the Group.
(iv) The Group has entered into a series
of commercial agreements with Tencent and its affiliates, including for the sale of the Group’s hotel inventory on Tencent’s
e-commerce platform, advertising on Tencent’s search engine and other online properties, payment processing on Tencent’s
payment process platform and marketing cooperation. The majority of the amount due from Tencent and its affiliates represents the
balances paid online by customers but held by Tencent’s e-commerce platform, which were in transition to the Group's bank
accounts as of December 31, 2014 and 2015, respectively.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(17) RELATED PARTY TRANSACTIONS - continued
(v) On October 26, 2015, Ctrip completed
a share exchange transaction with Baidu, Inc, pursuant to which Ctrip acquired ordinary shares of Qunar Cayman Islands Limited
("Qunar") representing 45% of the voting equity of Qunar. As such, since October 27, 2015, Qunar and its affiliates have
been related parties of the Group. As of December 31, 2015, the balance of amounts due from Qunar and its affiliates represents
the value of unused Qunar advertising credit belonging to the Group (see Note 11). Transactions between Qunar and its affiliates
and the Group between October 26, 2015 and December 31, 2015 were not material.
(vi) Under a cooperation agreement entered
into in September 2010, and subsequently amended, the Group provides a private-label website and pays commissions to Jiuyou. In
December 2014, the Group recorded an impairment charge for its investment in Jiuyou and recorded RMB10,500,000 bad debt provision
for the advance to Jiuyou. The probable credit loss was included in “general and administrative” in the consolidated
statements of comprehensive income/(loss) for the year ended December 31, 2014. As stated in Note 3, upon the completion of the
transfer of Jiuyou's shares in February 2015, Jiuyou ceased to be a related party of the Group.
(vii) As described in note 3,
Shenzhen JL was consolidated in 2014 and accordingly ceased to be the Group's external related party. The balance represents
the accommodation reservation revenue earned by the Group from Shenzhen JL prior to its consolidation.
(18) RESTRICTED NET ASSETS
The Group’s ability to pay dividends
is primarily dependent on eLong, Inc. receiving distributions of funds from its PRC subsidiaries and VIEs. PRC laws and regulations
permit payments of dividends by the Group’s PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined
in accordance with PRC accounting standards. The results of operations reflected in the Group’s consolidated financial statements
prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Group’s PRC
subsidiaries and VIEs prepared in accordance with PRC accounting standards.
Under PRC law, the Company’s PRC
subsidiaries are required to provide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and
a staff welfare and bonus fund. The subsidiaries are required to allocate at least 10% of their after tax profits on an individual
company basis as determined under PRC accounting standards to the general reserve and have the right to discontinue allocations
to the general reserve if such reserve has reached 50% of paid-in registered capital on an individual company basis. Appropriations
to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the Board of Directors of the subsidiaries.
The Company’s VIEs are also subject to similar statutory reserve requirements. These reserves can only be used for specific
purposes and are not transferable to the Company in the form of loans, advances or cash dividends. As of December 31, 2014 and
2015, the Company’s PRC subsidiaries and VIEs had appropriated RMB3,665,186 and RMB9,825,772, respectively, of retained earnings
for their statutory reserves.
In addition, the paid-in registered capital
of the Company’s PRC subsidiaries and VIEs is also deemed restricted net assets.
Foreign exchange and other
regulations in the PRC further restrict the Company’s PRC subsidiaries and VIEs from transferring funds to the Company
in the form of loans, advances or cash dividends. As of December 31, 2014 and 2015, restricted net assets of the
Company’s PRC subsidiaries and VIEs were RMB93,373,296 and RMB190,403,394, respectively.
(19) FAIR VALUE MEASUREMENTS
The fair value of cash equivalents, restricted
cash, and short-term investments is based on observable inputs in non-active markets, and are therefore classified as Level 2 in
the ASC 820-10 three-tier hierarchy. The fair value of employee interest-free loan is based on inputs that are readily available
from public markets, and are therefore classified as Level 2 in the hierarchy. The carrying value of cash equivalents, restricted
cash, short-term investments and employee interest-free loan approximates fair value.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(19) FAIR VALUE MEASUREMENTS - continued
Assets and liabilities measured or disclosed
at fair value as of December 31, 2014 are summarized below:
|
|
|
|
|
Fair value measurement or disclosure
as of December 31, 2014 using
|
|
|
|
|
|
|
Total fair value as of
December 31, 2014
|
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
|
Significant other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
Impairment
charges
|
|
Fair value disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (time deposits)
|
|
|
186,578,667
|
|
|
|
-
|
|
|
|
186,578,667
|
|
|
|
-
|
|
|
|
-
|
|
Cash equivalents (money market funds in the PRC)
|
|
|
93,660,365
|
|
|
|
-
|
|
|
|
93,660,365
|
|
|
|
-
|
|
|
|
-
|
|
Restricted cash (time deposits)
|
|
|
123,936,600
|
|
|
|
-
|
|
|
|
123,936,600
|
|
|
|
-
|
|
|
|
-
|
|
Short-term investments (time deposits)
|
|
|
1,306,634,495
|
|
|
|
-
|
|
|
|
1,306,634,495
|
|
|
|
-
|
|
|
|
-
|
|
Other current assets (interest fee employee loan)
|
|
|
3,432,785
|
|
|
|
-
|
|
|
|
3,432,785
|
|
|
|
-
|
|
|
|
-
|
|
Other non-current assets (interest free employee loan)
|
|
|
7,632,434
|
|
|
|
-
|
|
|
|
7,632,434
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due from Jiuyou
|
|
|
1,062,395
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,062,395
|
|
|
|
(10,500,000
|
)
|
Investment in Jiuyou
|
|
|
788,932
|
|
|
|
-
|
|
|
|
-
|
|
|
|
788,932
|
|
|
|
(35,085,293
|
)
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,524,213
|
)
|
Total assets measured at fair value on non-recurring basis
|
|
|
1,851,327
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,851,327
|
|
|
|
(51,109,506
|
)
|
During the year ended December 31, 2014,
certain amounts due from Jiuyou, the investment in Jiuyou and goodwill of the Group were measured using significant unobservable
inputs (Level 3), using a discounted cash flow approach assuming a certain discount rate, and were written down from their respective
carrying values to fair value. The corresponding impairment charges incurred were recorded in the consolidated statements of comprehensive
loss. The recoverable amount of these assets was determined based on observable inputs by reference to the comparable rate of return
on equity, after-tax cost of debt, percentage of equity in the capital structure, percentage of debt in the capital structure,
risk free rate of return, market rate of return, and geared equity beta.
Assets and liabilities measured or disclosed
at fair value as of December 31, 2015 are summarized as below:
|
|
|
|
|
Fair value measurement or disclosure
as of December 31, 2015 using
|
|
|
|
|
|
|
Total fair value as of
December 31, 2015
|
|
|
Quoted prices in
active markets for
identical assets
(Level 1)
|
|
|
Significant other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
Impairment
charges
|
|
Fair value disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (time deposits)
|
|
|
443,438,723
|
|
|
|
-
|
|
|
|
443,438,723
|
|
|
|
-
|
|
|
|
-
|
|
Cash equivalents (money market funds in the PRC)
|
|
|
857,201
|
|
|
|
-
|
|
|
|
857,201
|
|
|
|
-
|
|
|
|
-
|
|
Restricted cash (time deposits)
|
|
|
146,479,837
|
|
|
|
-
|
|
|
|
146,479,837
|
|
|
|
-
|
|
|
|
-
|
|
Short-term investments (time deposits)
|
|
|
244,507,124
|
|
|
|
-
|
|
|
|
244,507,124
|
|
|
|
-
|
|
|
|
-
|
|
Other current assets (interest fee employee loan)
|
|
|
3,051,018
|
|
|
|
-
|
|
|
|
3,051,018
|
|
|
|
-
|
|
|
|
-
|
|
Other non-current assets (interest free employee loan)
|
|
|
5,728,265
|
|
|
|
-
|
|
|
|
5,728,265
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in 2013 Affiliate Company
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(459,253
|
)
|
Intangible assets associated with Shenzhen JL
|
|
|
18,393,927
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,393,927
|
|
|
|
(40,401,740
|
)
|
Total assets measured at fair value on non-recurring basis
|
|
|
18,393,927
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,393,927
|
|
|
|
(40,860,993
|
)
|
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(19) FAIR VALUE MEASUREMENTS - continued
In December 2015, the management
of the Group wrote down the value of the investment in 2013 Affiliate Company to zero, as a result of declining financial performance
and a change in the business circumstances of the investee. As described in Note 3, the Group wrote the value of the trade name
down to its fair value as of December 31,2015. The valuation was made using the relief from royalty method, based on a royalty
rate of 0.12%, a discount rate of 16.5% and a terminal growth rate of 4%.
(20) SUBSEQUENT EVENTS
On February 4, 2016, the Company entered
into a definitive Agreement and Plan of Merger (the "Merger Agreement") with China E-dragon Holdings Limited ("Parent")
and China E-dragon Mergersub Limited ("Merger Sub"), a wholly owned subsidiary of Parent, pursuant to which Parent will
acquire the Company. At the closing of the transaction, Parent will be owned by a consortium of certain existing shareholders,
including C-Travel, TCH, Ocean Imagination and Luxuriant, along with Seagull Limited and certain management members of the Company
(the "Buyer Group"). Under the terms of the Merger Agreement, the shareholders other than those in the Buyer Group will
receive US$9.00 in cash for each ordinary share (a "Share") that they hold, or US$18.00 in cash for each ADS that they
hold.
The purpose of the merger is to enable
Parent to acquire 100% control of the Company in a transaction in which the Company’s shareholders other than the holders
of Excluded Shares (as defined below) will be cashed out in exchange for $9.00 per Share (or $18.00 per ADS), so that Parent will
bear the rewards and risks of the sole ownership of the Company after the merger, including any future earnings and growth of the
Company as a result of improvements to the Company’s operations or acquisitions of other businesses. Immediately following
the completion of the merger, the Company will cease to be a publicly traded company and will instead become a privately-held company
owned directly by Parent and indirectly by the other members of the Buyer Group (other than Merger Sub). Following the completion
of the merger, the ADSs will cease to be listed on NASDAQ, and price quotations with respect to sales of the ADSs in the public
market will no longer be available. In addition, upon filing of Form 15 by the Company in connection with the completion of the
merger, the Company’s duty to file periodic reports with the SEC will be suspended immediately, and registration of the ADSs
and the underlying Shares under the Exchange Act will be terminated 90 days after the filing of Form 15 or such shorter period
as may be determined by the SEC. Accordingly, the Company will no longer be required to file periodic reports with the SEC. After
completion of the merger, the Company’s shareholders will no longer enjoy the rights or protections the United States federal
securities laws provide, including reporting obligations for directors, officers and principal holders of securities of the Company.
Furthermore, following the completion of the merger, the American depositary shares program for the ADSs will terminate.
Under the terms of the merger agreement,
at the effective time of the merger (the “Effective Time”),
(I) each outstanding Share, other than
the following items, will be cancelled in exchange for the right to receive $9.00 in cash without interest (the “Per Share
Merger Consideration”)
|
(i).
|
25,440,699 Ordinary Shares and 33,589,204 High-Vote Ordinary
Shares beneficially owned by the Rollover Shareholders
1
(such Shares collectively, the “Rollover Shares”);
|
|
(ii).
|
Shares (including Shares represented by ADSs) owned by Parent, the Company, or their respective direct or indirect subsidiaries;
|
|
(iii).
|
Shares (including Shares represented by ADSs) held by the ADS depositary reserved for the issuance, settlement
and allocation upon exercise or vesting of the Company's equity awards under the Company's equity plans (Shares described under
(i) through (iii) above are collectively referred to herein as the “Excluded Shares”);
|
|
(iv).
|
Shares owned by shareholders who have validly exercised and have not effectively withdrawn or lost their dissenters’
rights under the Cayman Islands Companies Law (the “Dissenting Shares”) and
|
|
(v).
|
Shares represented by ADSs
|
(1)
TCH, C-Travel, Ocean Imagination
and Luxuriant are collectively referred as the "Rollover Shareholders".
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(20) SUBSEQUENT EVENTS - continued
(II) each issued and outstanding ADS together
with the Shares underlying such ADS (other than any ADS representing Excluded Shares) will be cancelled in exchange for the right
to receive $18.00 in cash per ADS without interest (the “Per ADS Consideration”), in each case net of any applicable
withholding taxes described in the merger agreement.
(III) The Excluded Shares will be cancelled
for no consideration and the Dissenting Shares will be cancelled for their fair value as determined in accordance with, and subject
to compliance with, the Cayman Islands Companies Law.
Under the terms of the support agreement
entered into by and among Parent and the Rollover Shareholders (the “Support Agreement”), concurrently with the execution
and delivery of the merger agreement, at the Effective Time, the Rollover Shares will be cancelled for no consideration, and each
Rollover Shareholder will, at the closing of the merger, subscribe or cause its affiliate to subscribe, for the number and class
of shares in Parent set forth in the Support Agreement.
In addition, at the Effective Time,
(I) each outstanding fully vested option
to purchase Shares (each a “Company Option”) granted under the Company’s equity plans, other than the vested
Company Options held by the Executive Equity holders
2
,
will be cancelled and immediately converted into the right to receive in exchange therefor an amount of cash (the “Option
Consideration”) equal to (a) the excess, if any, of (i) the Per Share Merger Consideration over (ii) the exercise price per
Ordinary Share subject to such Company Option, multiplied by (b) the number of Ordinary Shares underlying such Company Option,
provided that if the exercise price of any such Company Option is equal to or greater than the Per Share Merger Consideration,
such Company Option will be cancelled without any payment therefor.
(II) each outstanding fully vested restricted
share unit (each a “Company RSU Award”) granted under the Company's equity plans, other than the vested Company RSU
Awards held by the Executive Equity holders, will be cancelled and immediately converted into the right to receive in exchange
therefor an amount of cash (the “RSU Award Consideration”) equal to (a) the Per Share Merger Consideration multiplied
by (b) the number of Ordinary Shares underlying such Company RSU Award.
(III) each outstanding unvested Company
Option granted under the Company's equity plans, other than the unvested Company Options held by the Executive Equity holders,
will be cancelled and immediately converted into the right to receive in exchange therefor an award of options to purchase (each
a “Parent Option” and collectively, the “Parent Options”) (a) the same number of Parent common shares as
the total number of Ordinary Shares subject to such Company Option immediately prior to the Effective Time, (b) at a per-share
exercise price equal to the exercise price per Ordinary Share at which such Company Option was exercisable immediately prior to
the Effective Time, subject to and in accordance with the terms of the applicable Company's equity plans and award agreement, and
subject further, if applicable, to adjustments in accordance with the terms of the merger agreement to provide substantially the
same economic terms of such Company Option.
(IV) each outstanding unvested Company
RSU Award granted under the Company's equity plans, other than the unvested Company RSU Awards held by the Executive Equity holders
(as defined below) and the Company RSU Awards held by the Guangfu Cui, the Former CEO, will be cancelled and immediately converted
into the right to receive in exchange therefor an award of Parent restricted share units (each a “Parent RSU Award”
and collectively, the “Parent RSU Awards”) to acquire the same number of Parent common shares as the total number of
Ordinary Shares subject to such Company RSU Award immediately prior to the Effective Time, subject to and in accordance with the
terms of the applicable Company's equity plans and award agreement, and subject further, if applicable, to adjustments in accordance
with the terms of the merger agreement to provide substantially the same economic terms of such Company RSU Award.
(V) each outstanding Company Option held by Executive Equity holders will be cancelled and immediately
converted into the right to receive in exchange therefor either the Option Consideration (if any) or a Parent Option, as specified
in, and in accordance with, the relevant agreement among each such Executive Equity holder, Parent and Merger Sub (each an “Executive
Excluded Securities Letter”).
(2)
"Executive Equity holder(s)" represents
certain member(s) of the Company’s executive management.
eLong, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Amounts in Renminbi (RMB)
(20) SUBSEQUENT EVENTS - continued
(VI) each outstanding Company RSU Award
held by each Executive Equity holder, will be cancelled and immediately converted into the right to receive in exchange therefor,
either the RSU Award Consideration or a Parent RSU Award, as specified in, and in accordance with the terms and conditions of the
relevant Executive Excluded Securities Letter of such Executive Equity holder.
(VII) each Company RSU Award held by Guangfu
Cui will be cancelled and immediately converted into the right to receive in exchange therefor the RSU Award Consideration, in
accordance with the terms and conditions of an agreement among the Guangfu Cui, Parent, Merger Sub and the Company.
The merger remains subject to the satisfaction
or waiver of the conditions set forth in the merger agreement, including obtaining the requisite authorization and approval of
the shareholders of the Company. In order for the merger to be completed, the merger agreement, the plan of merger and the merger
must be authorized and approved by a special resolution of the Company passed by an affirmative vote of holders of Shares representing
at least two-thirds of the voting power of the outstanding Shares entitled to vote present and voting in person or by proxy as
a single class at the extraordinary general meeting of the shareholders of the Company.