ITEM 8 FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See "Item 18. Financial Statements."
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Legal and Administrative Proceedings
We are involved from time to time, and may in the future be involved in, litigation, claims or other disputes in the ordinary course of business
regarding, among other things, contract disputes with our customers, copyright, trademark and other intellectual property infringement claims, consumer protection claims, employment related cases and
other matters in the ordinary course of our and disputes between our merchants and consumers.
We
establish balance sheet provisions relating to potential losses from litigation based on estimates of the losses. For this purpose, we classify potential losses as remote, reasonably
possible or probable. We analyze potential outcomes from current and potential litigation and proceedings as loss contingencies in accordance with U.S. GAAP. Our management believes that the
risk of loss in connection with the proceedings discussed below is currently remote and that these proceedings will not have a material adverse effect on our financial condition, either individually
or in the aggregate. However, in light of the inherent uncertainties involved in these matters, some of which are beyond our control, the risk of loss may become more likely and an adverse outcome of
one or more of these matters could be material to our results of operations or cash flows for any particular reporting period. See note 2 to our audited consolidated financial statements
included elsewhere in this annual report for more information on our provisioning policy with regard to legal and administrative proceedings.
Class Action Lawsuits
In January 2015, we were named as a defendant in the first of seven putative shareholder class action lawsuits filed in the
United States District Courts for the Southern District of New York, Central District of California and Northern District of California. The operative complaint is brought on behalf of a
putative class of shareholders who acquired our American Depositary Shares from October 21, 2014 through January 29, 2015, inclusive. The complaints assert claims under the
United States Securities Exchange Act of 1934.
In
June 2015, the U.S. Judicial Panel on Multidistrict Litigation ordered transfer of the actions in the Central District of California to the Southern District of
New York for coordinated or consolidated pretrial proceedings with the four actions before that court. In June 2015, the Panel ordered transfer of the action pending in the Northern
District of California to the Southern District of New York. The actions in the Southern District of New York were consolidated under the master caption,
Christine Asia Co., Ltd. et al. v. Alibaba
Group Holding Limited et al.
, No. 1:15-md-02631-CM (S.D.N.Y.),
and related cases.
The
Southern District of New York appointed a Lead Plaintiff and Lead Counsel on behalf of the putative class pursuant to the Private Securities Litigation Reform Act.
In
June 2015, the Lead Plaintiff filed a consolidated amended complaint, which generally alleged that the registration statement and prospectus filed in connection with our
initial public offering and various other public statements contained misrepresentations regarding our business operations and financial prospects, and failed to disclose, among other things,
regulatory scrutiny by the SAIC prior to our initial public offering. Specifically, plaintiffs alleged that we should have disclosed a 2014 SAIC anti-counterfeiting initiative in the e-commerce
market, a July 16, 2014 administrative guidance meeting we had with the SAIC that was later the subject of a self-described "white paper" issued and then withdrawn by the SAIC, and the alleged
impact of the sale of counterfeit goods on our financial results. Plaintiffs asserted claims against our company and Executive Chairman Jack Yun Ma, Executive Vice Chairman Joseph C. Tsai, then Chief
Executive Officer Jonathan Zhaoxi Lu and Chief Financial Officer Maggie Wei Wu for violation of sections 10(b) and 20(a) of the United States Exchange Act and Rule 10b-5.
Plaintiffs sought unspecified damages, attorneys' fees and costs.
In
July 2015, the Defendants filed a motion to dismiss the complaint for failure to state a claim. In June 2016, the Southern District of New York issued an order
granting Defendants' motion to dismiss without leave to amend. The order held that Plaintiffs failed to plead that Defendants made actionable misstatements or omissions or that Defendants acted
with scienter.
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On
July 20, 2016, Plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit. The matter is now pending on appeal. The appeal has been
fully briefed and was argued before the Second Circuit in May 2017.
In October 2015, we were named as a defendant in the first of three securities class action lawsuits filed in the Superior Court of the
State of California, San Mateo County. The three actions were consolidated in October 2015, and plaintiffs filed a consolidated complaint on March 25, 2016. A fourth named plaintiff was
added on February 14, 2017 with the filing of the First Amended Consolidated Complaint. The consolidated action is captioned
Gary Buelow, et al. v. Alibaba Group
Holding Limited, et al.
, No. CIV-535692 (San Mateo Sup. Ct.). The consolidated action is brought on behalf of a putative class of investors who purchased Alibaba
American Depositary Shares pursuant or traceable to the IPO. The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the United States Securities Act of 1933.
The
consolidated complaint names our company, Executive Chairman Jack Yun Ma, Executive Vice Chairman Joseph C. Tsai, then Chief Executive Officer Jonathan Zhaoxi Lu, Chief Financial
Officer Maggie Wei Wu, Director Masayoshi Son, General Counsel and Secretary Timothy A. Steinert, and 34 separate underwriters of our initial public offering. It alleges that our company, our
senior officers who signed the registration statement, and the underwriters made material misrepresentations in our initial offering materials similar to those alleged in the above federal
consolidated complaint.
In
May 2016, we filed a demurrer for failure to state a claim and lack of subject matter jurisdiction in response to the consolidated complaint. In December 2016, the
Superior Court sustained the demurrer as to Sections 12(a)(2) and 15 and overruled the demurrer as to Section 11 with regard to the three original plaintiffs. In
January 2017, we answered the consolidated complaint, asserting a general denial as to all allegations and setting forth affirmative defenses.
In
September 2016, we filed a motion for summary judgment on the grounds that the three original plaintiffs lack statutory standing. In February 2017, a First Amended
Consolidated Complaint was filed that added a new plaintiff to the action. In March 2017, we filed a demurrer to the First Amended Consolidated Complaint.
Discovery
in the action is ongoing.
Pending SEC Inquiry
In early 2016, the SEC informed us that it was initiating an investigation into whether there have been any violations of the federal securities
laws. The SEC has requested that we voluntarily provide it with documents and information relating to, among other things: our consolidation policies and practices (including our accounting for
Cainiao Network as an equity method investee), our policies and practices applicable to related party transactions in general, and our reporting of operating data from Singles Day. We are voluntarily
disclosing this SEC request for information and cooperating with the SEC and, through our legal counsel, have been providing the SEC with requested documents and information. The SEC advised us that
the initiation of a request for information should not be construed as an indication by the SEC or its staff that any violation of the federal securities laws has occurred.
Kering Lawsuit
In May 2015, we were named as a defendant in a lawsuit filed in the Southern District of New York by Gucci America Inc.,
Balenciaga S.A., Balenciaga America, Inc., Bottega Veneta S.A., Bottega Veneta Inc., Yves Saint Laurent America, Inc., Luxury Goods International
(L.G.I.) S.A. and Kering S.A. The case is captioned Gucci America, Inc. et al. v. Alibaba Group Holding Ltd. et al., No. 15 cv 03784 PKC
(S.D.N.Y.). A second amended complaint was filed in September 2015. The complaint generally alleges that merchants on our marketplaces sold allegedly counterfeit or otherwise trademark
infringing merchandise, purportedly with our actual or constructive knowledge, and that we purportedly supported these merchants and this merchandise. In their complaint, the plaintiffs assert
multiple claims against our company and seek unspecified damages. In August 2016, the Court granted our motion to dismiss Plaintiffs' Racketeer Influenced and Corrupt Organizations Act, or
RICO, claims. Discovery on other claims is proceeding.
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Dividend Policy
Since our inception, we have not declared or paid any dividends on our ordinary shares. We have no present plan to pay any dividends on our
ordinary shares in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
Any
future determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors, including our future operations and earnings,
capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, the depositary will
pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our
ordinary shares, if any, will be paid in U.S. dollars.
We
are a holding company incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders and ADS holders, we rely on dividends, loans, and other
distributions on equity paid by our operating subsidiaries in China and on remittances, including loans, from our variable interest entities in China. Dividend distributions from our PRC subsidiaries
to us are subject to PRC taxes, such as withholding tax. In addition, regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax
profits as determined in accordance with its articles of association and the accounting standards and regulations in China. See "Item 3. Key
Information D. Risk Factors Risks Related to Doing Business in the People's Republic of
China We rely to a significant extent on dividends, loans and other distributions on equity paid by our principal operating subsidiaries in China and on
remittances, including loans, from the variable interest entities in China to fund offshore cash and financing requirements."
B. Significant Changes
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.