Amortization of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2016
|
|
2017
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
|
Amortization of intangible assets
|
|
|
2,931
|
|
|
5,122
|
|
|
75
|
%
|
|
Percentage of revenue
|
|
|
3
|
%
|
|
3
|
%
|
|
|
|
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Amortization
of intangible assets increased by 75% from RMB2,931 million in fiscal year 2016 to RMB5,122 million in fiscal year 2017. This increase was due to an increase
in intangible assets recognized arising from our strategic acquisitions and investments, including Youku and Lazada.
Income from Operations and Operating Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2016
|
|
2017
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
|
Income from operations
|
|
|
29,102
|
|
|
48,055
|
|
|
65
|
%
|
|
Percentage of revenue
|
|
|
29
|
%
|
|
30
|
%
|
|
|
|
|
Share-based compensation expense included in income from operations
|
|
|
16,082
|
|
|
15,995
|
|
|
(1
|
)%
|
|
Percentage of revenue
|
|
|
16
|
%
|
|
10
|
%
|
|
|
|
|
Income from operations excluding share-based compensation expense
|
|
|
45,184
|
|
|
64,050
|
|
|
42
|
%
|
|
Percentage of revenue
|
|
|
45
|
%
|
|
40
|
%
|
|
|
|
Our
income from operations increased by 65% from RMB29,102 million, or 29% of revenue, in fiscal year 2016 to RMB48,055 million, or 30% of revenue, in fiscal year 2017.
Without the effect of share-based compensation expense, our operating margin would have decreased from 45% in fiscal year 2016 to 40% in fiscal year 2017, primarily attributable to our consolidation
of Youku and Lazada, partially offset by operating leverage.
Adjusted EBITA and adjusted EBITA margin
Adjusted EBITA and adjusted EBITA margin by segments are set forth in the table below. See the section entitled
"— Segment Information for Fiscal Years 2016, 2017 and 2018" above for a reconciliation of income from operations to adjusted EBITA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2016
|
|
2017
|
|
|
|
RMB
|
|
% of Segment
Revenue
|
|
RMB
|
|
% of Segment
Revenue
|
|
|
|
(in millions, except percentages)
|
|
|
Core commerce
|
|
|
58,036
|
|
|
63
|
%
|
|
82,432
|
|
|
62
|
%
|
|
Cloud computing
|
|
|
(1,252
|
)
|
|
(41
|
)%
|
|
(476
|
)
|
|
(7
|
)%
|
|
Digital media and entertainment
|
|
|
(1,810
|
)
|
|
(46
|
)%
|
|
(6,542
|
)
|
|
(44
|
)%
|
|
Innovation initiatives and others
|
|
|
(3,467
|
)
|
|
(191
|
)%
|
|
(3,125
|
)
|
|
(104
|
)%
|
Adjusted EBITA increased by 42% to RMB82,432 million in fiscal year 2017, compared to RMB58,036 million in fiscal year 2016.
Adjusted EBITA margin decreased to 62% in fiscal year 2017 from 63% in fiscal year 2016, primarily due to our investments in globalization (including the consolidation of Lazada), user base and user
experience, partially offset by operating leverage.
Adjusted EBITA in fiscal year 2017 was a loss of RMB476 million, compared to a loss of RMB1,252 million in fiscal year 2016.
Adjusted EBITA margin improved to negative 7% in fiscal year 2017 from negative 41% in fiscal year 2016, primarily due to robust growth in revenue and economies of scale.
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Adjusted EBITA in fiscal year 2017 was a loss of RMB6,542 million, compared to a loss of RMB1,810 million in fiscal year 2016.
Adjusted EBITA margin improved to negative 44% in fiscal year 2017 from negative 46% in fiscal year 2016, primarily due to improved margins at UCWeb driven by an increase in revenue from mobile
value-added services, partially offset by the consolidation of Youku.
Adjusted EBITA in fiscal year 2017 was a loss of RMB3,125 million, compared to a loss of RMB3,467 million in fiscal year 2016.
Adjusted EBITA margin improved to negative 104% in fiscal year 2017 from negative 191% in fiscal year 2016, primarily due to an increase in revenue from new business initiatives.
Interest and Investment Income, Net
Our net interest and investment income decreased from RMB52,254 million in fiscal year 2016 to RMB8,559 million in fiscal year
2017. Interest and investment income in fiscal year 2016 included a deemed disposal gain of RMB24,734 million arising from the deconsolidation of Alibaba Pictures and a gain of
RMB18,603 million from the revaluation of our previously held equity interest in Alibaba Health when we obtained control over Alibaba Health in July 2015.
Interest Expense
Our interest expense increased by 37% from RMB1,946 million in fiscal year 2016 to RMB2,671 million in fiscal year 2017. The
increase in interest expense was primarily due to an increase in average debt outstanding, including an additional US$4.0 billion five-year term loan facility drawn down in fiscal
year 2017.
Other Income, Net
Our other income, net increased by 196% from RMB2,058 million in fiscal year 2016 to RMB6,086 million in fiscal year 2017. The
increase was primarily due to an increase in exchange gains and income recognized in respect of royalty fees and software technology services fees from Ant Financial, which increased from
RMB1,122 million in fiscal year 2016 to RMB2,086 million in fiscal year 2017.
Income Tax Expenses
Our income tax expenses increased by 63% from RMB8,449 million in fiscal year 2016 to RMB13,776 million in fiscal year 2017. The
increase in income tax expenses was primarily due to the increase in taxable income from our operations in China. Our effective tax rate increased to 23% in fiscal year 2017 from 10% in fiscal year
2016. Profit before income tax in fiscal year 2016 included a deemed disposal gain of RMB24,734 million arising from the deconsolidation of Alibaba Pictures and a gain of
RMB18,603 million from the revaluation of our previously held equity interest in Alibaba Health, which was non-taxable, leading to a lower effective tax rate in fiscal year 2016. Excluding
share-based compensation expense, impairment of goodwill and investments, as well as other unrealized investment gain/loss, our effective tax rate would have been 18% in fiscal year 2017, compared to
15% in fiscal year 2016, primarily due to the consolidation of Youku and Lazada, which are both loss-making.
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Share of Results of Equity Investees
Share of losses of equity investees in fiscal year 2017 was RMB5,027 million, an increase of 191% compared to RMB1,730 million in
fiscal year 2016. Share of results of equity investees in fiscal years 2016 and 2017 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
2016
|
|
2017
|
|
|
|
RMB
|
|
RMB
|
|
|
|
(in millions)
|
|
|
Share of (loss) profit of equity investees:
|
|
|
|
|
|
|
|
|
Koubei
|
|
|
(867
|
)
|
|
(990
|
)
|
|
Youku
|
|
|
(391
|
)
|
|
—
|
|
|
Cainiao Network
|
|
|
(295
|
)
|
|
(1,056
|
)
|
|
Others
|
|
|
62
|
|
|
(838
|
)
|
|
Impairment loss
|
|
|
—
|
|
|
(245
|
)
|
|
Dilution gain (loss)
|
|
|
827
|
|
|
(336
|
)
|
|
Others
|
|
|
(1,066
|
)
|
|
(1,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,730
|
)
|
|
(5,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
increase in share of losses of equity investees in fiscal year 2017 compared to fiscal year 2016 was primarily due to an increase in our share of losses of Cainiao Network and other
equity investees, as well as an accounting loss related to the dilution of our ownership interest in Weibo in fiscal year 2017, which resulted from Weibo's issuance of share-based compensation, as
compared to accounting gains related the dilution of our ownership interests in Cainiao Network and Evergrande FC, as these investees each raised capital at a higher valuation in fiscal
year 2016.
Net Income
As a result of the foregoing, our net income decreased by 42% from RMB71,289 million in fiscal year 2016 to RMB41,226 million in
fiscal year 2017.
B. Liquidity and Capital Resources
We fund our operations and strategic investments from cash generated from our operations and through debt and equity financing. We generated
RMB56,836 million, RMB80,326 million and RMB125,171 million (US$19,955 million) of cash from operating activities for fiscal years 2016, 2017 and 2018, respectively. As of
March 31, 2018, we had cash and cash equivalents and short-term investments of RMB199,309 million (US$31,775 million) and RMB6,086 million (US$970 million),
respectively. Short-term investments consist primarily of investments in fixed deposits with maturities between three months and one year and investments in money market funds or other investments
whereby we have the intention to redeem within one year.
In
November 2014, we issued unsecured senior notes, including floating rate and fixed rate notes, with varying maturities for an aggregate principal amount of
US$8.0 billion. Interest on the unsecured senior notes are payable in arrears, quarterly for the floating rate notes and semiannually for the fixed-rate notes. We used the proceeds from the
issuance of the unsecured senior notes to refinance our previous syndicated loan arrangements in the same amount. We are not subject to any financial covenant or other significant operating covenants
under the unsecured senior notes. See note 20 to our audited consolidated financial statements included elsewhere in this annual report for further information.
In
March 2016, we signed a five-year US$3.0 billion syndicated loan agreement with a group of eight lead arrangers which was subsequently drawn down in April 2016.
The loan was upsized from US$3.0 billion to
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US$4.0 billion
in May 2016 through a general syndication and the upsized portion was subsequently drawn down in August 2016. The loan has a five-year bullet maturity and is priced
at 110 basis points over LIBOR. The use of proceeds of the loan is for general corporate and working capital purposes (including funding our acquisitions).
In
April 2017, we entered into a revolving credit facility agreement with certain financial institutions for an amount of US$5.15 billion which has not yet been drawn down.
The interest rate for this credit facility is calculated based on LIBOR plus 95 basis points. This loan facility is reserved for future general corporate and working capital purposes (including
funding our acquisitions).
In
November 2017, we repaid US$1.3 billion of our US$8.0 billion unsecured senior notes that became due. In December 2017, we issued an additional aggregate
of US$7.0 billion unsecured senior notes.
As
of March 31, 2018, we also had other bank borrowings of RMB15,224 million (US$2,427 million), primarily used for the construction of corporate campuses and office
facilities and other working capital purposes. See note 19 to our audited consolidated financial statements included elsewhere in this annual report for further information.
We
believe that our current levels of cash and cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next twelve months. However, we may need
additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions, which may include investing in
technology, infrastructure, including data management and analytics solutions, or related talent. If we determine that our cash requirements exceed our amounts of cash on hand or if we decide to
further optimize our capital structure, we may seek to issue additional debt or equity securities or obtain credit facilities or other sources of funding.
The
following table sets out a summary of our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2016
|
|
2017
|
|
2018
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in millions)
|
|
|
Net cash provided by operating activities
|
|
|
56,836
|
|
|
80,326
|
|
|
125,171
|
|
|
19,955
|
|
|
Net cash used in investing activities
|
|
|
(42,831
|
)
|
|
(78,364
|
)
|
|
(83,890
|
)
|
|
(13,374
|
)
|
|
Net cash (used in) provided by financing activities
|
|
|
(15,846
|
)
|
|
32,914
|
|
|
20,359
|
|
|
3,246
|
|
Cash Provided by Operating Activities
Cash provided by operating activities in fiscal year 2018 was RMB125,171 million (US$19,955 million) and primarily consisted of
net income of RMB61,412 million (US$9,791 million), as adjusted for non-cash items and the effects of changes in working capital and other activities. Adjustments for non-cash items
primarily included revaluation gains on previously held equity interests of RMB24,436 million (US$3,896 million), share of results of equity investees of RMB20,792 million
(US$3,315 million), share-based compensation expense of RMB20,075 million (US$3,201 million), amortization of intangible assets and licensed copyrights of RMB13,231 million
(US$2,109 million) and depreciation and amortization of property and equipment and land use rights of RMB8,789 million (US$1,401 million). Changes in working capital and other
activities primarily consisted
of an increase of RMB23,158 million (US$3,692 million) in accrued expenses, accounts payable and other current liabilities as a result of the growth of our business, an increase of
RMB6,610 million (US$1,054 million) in income tax payable and an increase of RMB5,690 million (US$907 million) in deferred revenue and customer advances, partially offset
by an increase of RMB14,765 million (US$2,355 million) in prepayment, receivables and other assets.
Cash
provided by operating activities in fiscal year 2017 was RMB80,326 million and primarily consisted of net income of RMB41,226 million, as adjusted for non-cash items
and the effects of changes in working capital and other activities. Adjustments for non-cash items primarily included share-based compensation expense of
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RMB15,995 million,
amortization of intangible assets and licensed copyrights of RMB9,008 million, realized and unrealized gain of RMB5,488 million related to investment
securities, depreciation and amortization of property and equipment and land use rights of RMB5,284 million and share of results of equity investees of RMB5,027 million. Changes in
working capital and other activities primarily consisted of an increase of RMB5,312 million in accrued expenses, accounts payable and other current liabilities as a result of the growth of our
business, an increase of RMB4,698 million in income tax payable and an increase of RMB4,611 million in deferred revenue and customer advances, partially offset by an increase of
RMB8,237 million in prepayment, receivables and other assets.
Cash
provided by operating activities in fiscal year 2016 was RMB56,836 million and primarily consisted of net income of RMB71,289 million, as adjusted for non-cash items
and the effects of changes in working capital and other activities. Adjustments for non-cash items primarily included a deemed disposal gain of RMB24,734 million arising from the
deconsolidation of Alibaba Pictures, a gain of RMB18,603 million from the revaluation of our previously held equity interest related to Alibaba Health, share-based compensation expense of
RMB16,082 million, depreciation and amortization of property and equipment and land use rights of RMB3,770 million, amortization of intangible assets and licensed copyrights of
RMB3,278 million and a gain of RMB3,089 million from disposals of equity investees. Changes in working capital and other activities primarily consisted of an increase of
RMB7,757 million in accrued expenses, accounts payable and other current liabilities as a result of the growth of our business and an increase of RMB2,350 million in deferred revenue and
customer advances, partially offset by an increase of RMB4,504 million in prepayment, receivables and other assets.
Cash Used in Investing Activities
Cash used in investing activities was RMB83,890 million (US$13,374 million) in fiscal year 2018 and was primarily attributable to
RMB66,134 million (US$10,543 million) in acquisition of investment securities and equity investments mainly held for strategic purposes, including Sun Art Group Limited, Ele.me, Wanda
Film,
Easyhome and Tokopedia, and cash paid for business combinations, net of cash acquired, including Intime and Cainiao Network, capital expenditures of RMB29,836 million (US$4,756 million)
primarily in connection with the purchase of computer equipment and licensed copyrights, as well as the continued expansion of our corporate campuses, partially offset by proceeds from disposal of
subsidiaries, equity investees and investment securities of RMB13,381 million (US$2,134 million).
Cash
used in investing activities was RMB78,364 million in fiscal year 2017 and was primarily attributable to RMB77,552 million in acquisition of investment securities and
equity investments mainly held for strategic purposes, including Suning, Ele.me, Didi Chuxing, Paytm and Weibo, and cash paid for business combinations, net of cash acquired, including Youku and
Lazada, capital expenditures of RMB17,546 million primarily in connection with the purchase of computer equipment and licensed copyrights, as well as the continued expansion of our corporate
campuses, partially offset by proceeds from disposal of subsidiaries, equity investees and investment securities of RMB9,545 million and net decrease in short-term investments of
RMB5,761 million.
Cash
used in investing activities was RMB42,831 million in fiscal year 2016 and was primarily attributable to RMB54,483 million in acquisition of investment securities and
equity investments mainly held for strategic purposes, including Ele.me, Koubei, Magic Leap, CMC and Cainiao Network, and cash paid for business combinations, net of cash acquired, capital
expenditures of RMB10,845 million primarily in connection with the purchase of computer equipment and the continued expansion of our corporate campuses, partially offset by proceeds from
disposal of subsidiaries, equity investees and investment securities of RMB17,088 million and net decrease in short-term investments of RMB4,619 million.
Cash Provided by (Used in) Financing Activities
Cash provided by financing activities was RMB20,359 million (US$3,246 million) in fiscal year 2018, and was primarily attributable
to proceeds from issuance of senior notes of US$7.0 billion, partly offset by net repayment of unsecured senior notes and bank borrowings of RMB12,192 million (US$1,944 million)
and cash used to acquire
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Table of Contents
additional
shares of non-wholly owned subsidiaries, primarily including Lazada and Intime, of RMB13,627 million (US$2,173 million).
Cash
provided by financing activities was RMB32,914 million in fiscal year 2017, and was primarily attributable to net proceeds from borrowings of RMB29,333 million and
proceeds from issuance of ordinary shares of RMB14,607 million, primarily representing shares issued to Suning, partially offset by cash used in share repurchase of RMB13,182 million.
Cash
used in financing activities was RMB15,846 million in fiscal year 2016, and was primarily attributable to cash used in share repurchase of RMB19,795 million, partially
offset by net proceeds from borrowings of RMB2,478 million.
Capital Expenditures
Our capital expenditures have been incurred primarily in relation to (1) the acquisition of land use rights and construction of corporate
campuses and office facilities in Hangzhou, Beijing, Guangzhou and Shenzhen; (2) the acquisition of computer equipment relating to the operation of our websites, furniture and office equipment
and leasehold improvements for our office facilities; and (3) acquisitions of intangible assets and licensed copyrights. In fiscal years 2016, 2017 and 2018, our capital expenditures totaled
RMB10,845 million, RMB17,546 million and RMB29,836 million (US$4,756 million), respectively.
Holding Company Structure
We are a holding company with no operation other than ownership of operating subsidiaries in Hong Kong, China and elsewhere that own and operate
our marketplaces and other businesses as well as a portfolio of intellectual property rights. As a result, we rely on dividends and other distributions paid by our operating subsidiaries, including
funds to pay dividends to our shareholders or to service our outstanding debts. If our operating subsidiaries incur additional debt on their own behalf in the future, the instruments governing the
debt may restrict the ability of our operating subsidiaries to pay dividends or make other distributions to us. In addition, applicable PRC law permits payment of dividends to us by our operating
subsidiaries in China only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. Moreover, our operating subsidiaries in China are also
required to set aside a portion of their net income, if any, each year to fund general reserves for appropriations until this reserve has reached 50% of the related subsidiary's registered capital.
These reserves are not distributable as cash dividends. In addition, registered share capital and capital reserve accounts are also restricted from distribution. As of March 31, 2018, these
restricted net assets totaled RMB77,891 million (US$12,418 million). See note 22 to our audited consolidated financial statements included elsewhere in this
annual report.
Our
holding company structure differs from some of our peers in that we hold our material assets and operations, except for ICP and other licenses for regulated activities as well as
certain equity investments in restricted businesses, in our wholly-foreign owned enterprises and most of our revenue is generated directly by the wholly-foreign owned enterprises. As revenue is
generated directly by our wholly-foreign owned enterprises, the wholly-foreign owned enterprises directly capture the profits and associated cash flow from operations, without having to rely on
contractual arrangements to transfer cash flow from the variable interest entities to the wholly-foreign owned enterprises. In fiscal years 2016, 2017 and 2018, the significant majority of our
revenues were generated by our wholly-foreign owned enterprises in China. See "Item 4. Information on the Company — C. Organizational Structure" for
a description of these contractual arrangements and the structure of our company.
Inflation
Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of Statistics of
China, the year-over-year increase in the consumer price index in calendar years 2015, 2016 and 2017 was 1.4%, 2.0% and 1.6%, respectively. Although we have not been materially affected by
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inflation
in the past, we can provide no assurance that we will not be affected in the future by higher inflation rates in China.
Critical Accounting Policies and Estimates
Our significant accounting policies are set forth in note 2 to our audited consolidated financial statements included elsewhere in
this annual report. The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements. Our management periodically re-evaluates these estimates and assumptions based on historical experience and other factors, including expectations of future events that they believe to be
reasonable under the circumstances. Actual results may differ significantly from those estimates and assumptions. We have identified the following accounting policies as the most critical to an
understanding of our financial position and results of operations, because the application of these policies requires significant and complex management estimates, assumptions and judgment, and the
reporting of materially different amounts could result if different estimates or assumptions were used or different judgments were made.
Principles of Consolidation
A subsidiary is an entity in which (i) we directly or indirectly control more than 50% of the voting power; or (ii) we have the
power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meetings of the board of directors or to govern the financial and operating
policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders. However, there are situations in which consolidation is required even though these usual
conditions of consolidation do not apply. Generally, this occurs when an entity holds an interest in another business enterprise that was achieved through arrangements that do not involve voting
interests, which results in a disproportionate relationship between the entity's voting interests in, and its exposure to the economic risks and potential rewards of, the other business enterprise.
This disproportionate relationship results in what is known as a variable interest, and the entity in which we have the variable interest is referred to as a "VIE." We consolidate a VIE if we are
determined to be the primary beneficiary of the VIE. The primary beneficiary has both (i) the power to direct the activities of the VIE that most significantly impact the entity's economic
performance, and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
For
the entities that we invested in or are associated with but in which the usual conditions of consolidation mentioned above do not apply, we continuously reassess whether these
entities possess any of the characteristic of a VIE and whether we are the primary beneficiary.
We
consolidate our subsidiaries and the VIEs of which we are the primary beneficiary. On a periodic basis, we reconsider the initial determination of whether a legal entity is a
consolidated entity upon the occurrence of certain events provided in Accounting Standards Codification ("ASC") 810. We also continuously reconsider whether we are the primary
beneficiary of our affiliated entities as facts and circumstances change.
Recognition of Revenue
Revenue is principally comprised of customer management revenue, commissions on transactions, membership fees, cloud computing services revenue
and other revenue. Revenue represents the fair value of the consideration received or receivable for sales of goods and the provision of services in the ordinary course of our activities and is
recorded net of VAT. Consistent with the criteria of ASC 605 "Revenue Recognition," we recognize revenue when the following four revenue recognition criteria are met: (i) persuasive evidence of
an arrangement exists, (ii) delivery has occurred or services have been provided, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.
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The application of various accounting principles related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically,
complex arrangements with non-standard terms and conditions may require relevant contract interpretation to determine the appropriate accounting treatment, including whether the deliverables specified
in a multiple element arrangement should be treated as separate units of accounting. Other significant judgments include determining whether we are acting as the principal or the agent from an
accounting perspective in a transaction.
For
multiple element arrangements with customers, which primarily relate to the sale of membership packages and customer management services on our wholesale marketplace and Youku's
platforms, the arrangement consideration is allocated at the inception of the arrangement to each element based on their relative fair values for revenue recognition purposes. The consideration is
allocated to each element using vendor-specific objective evidence or third-party evidence of the standalone selling price for each deliverable, or if neither type of evidence is available, using
management's best estimate of selling price. Significant judgment is required in assessing the fair values of these elements by considering standalone selling price and other observable data. Changes
in the estimated fair values may cause the revenue recognized for each element to change but not the total amount of revenue allocated within a contract. We periodically re-assess the fair value of
the elements as a result of changes in market conditions. These multiple element arrangements are currently not significant to our operations. Revenue recognition for P4P marketing service and display
marketing on our China retail marketplaces does not require us to exercise significant judgment or estimate.
For
other arrangements, we apply significant judgment in determining whether we are acting as the principal or agent in a transaction. We record P4P marketing services revenue and
display marketing revenue generated through third-party marketing affiliate programs on a gross basis; and revenue relating to the Taobaoke program generated through third-party marketing affiliate
partners' websites where we do not take inventory risks on a net basis. In addition, revenue generated from certain platforms in which we operate as a primary obligor is reported on a gross basis
while such revenue was insignificant for each of the periods presented. Generally, when we are primarily obligated in a transaction and are subject to inventory risk or have latitude in establishing
prices and selecting suppliers, or have several but not all of these indicators, we record revenue on a gross basis. We record the net amount as revenue earned if we are not primarily obligated and do
not have inventory risk or latitude in establishing prices. These judgments could have significant implications on the amount of revenue we recognize.
Share-based Compensation Expense and Valuation of the Underlying Awards
Granting of share options, restricted shares and RSUs relating to our ordinary shares
We account for various types of share-based awards granted to the employees, consultants and directors of our company, our affiliates and
certain other companies, such as Ant Financial, in accordance with the authoritative guidance on share-based compensation expense. Under the fair value recognition provision of this guidance,
compensation for share-based awards granted, including share options, restricted shares and RSUs, is measured at the grant date, or at the future vesting dates in the case of consultants or other
non-employee grantees, based on the fair value of the awards and is recognized as expense over the requisite service period, which is generally the vesting period of the respective award, on an
accelerated attribution method. In the case of share-based awards granted to non-employees, the fair value of the unvested portion is re-measured each period, with the resulting difference, if any,
recognized as an expense during the period when the related services are rendered. Under the accelerated attribution method, each vesting installment of a graded vesting award is treated as a separate
share-based award, and accordingly each vesting installment is separately measured and attributed to expense, resulting in accelerated recognition of share-based compensation expense.
Share-based
compensation expense is recorded net of estimated forfeitures in our consolidated income statements and as such is recorded only for those share-based awards that are
expected to vest. We estimate the forfeiture rate based on historical forfeitures of equity awards and adjust the rate to reflect changes when necessary. We revise our estimated forfeiture rate if
actual forfeitures significantly differ from the initial estimates.
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Determining
the fair value of share-based awards requires significant judgment. We estimate the fair value of share options using the Black-Scholes valuation model, which requires inputs
such as the fair value of our ordinary shares, risk-free interest rate, expected dividend yield, expected life and expected volatility.
The
fair value of restricted shares and RSUs is determined based on the fair value of our ordinary shares. The market price of our publicly traded ADSs is used as an indicator of fair
value for our ordinary shares.
If
the fair value of the underlying equity and any of the assumptions used in the Black-Scholes model changes significantly, share-based compensation expense for future awards may differ
materially compared with the awards granted previously.
Beginning in 2013, we offered selected members of the Alibaba Partnership rights to acquire our restricted shares. The fair value of the rights
is determined using the Black-Scholes valuation model. For the rights offered before 2016, a discount for post-vesting sales restriction was applied to arrive at the estimated value of the restricted
shares. We record share-based compensation expense equivalent to the entire fair value of these rights less the initial subscription price in the period of subscription. For the rights offered in 2016
and 2017, we recognize share-based compensation expense equivalent to the entire fair value of these rights over the requisite service period.
Junhan made grants of certain share-based awards similar to share appreciation awards linked to the valuation of Ant Financial to certain of our
employees. The vesting of these awards is conditional upon the fulfillment of certain requisite service conditions, and these awards will be settled in cash by Junhan upon their disposal by the
holders. Junhan has the right to repurchase the vested awards from the holders upon an initial public offering of Ant Financial or the termination of the holder's employment with us at a price to be
determined
based on the then fair market value of Ant Financial. We have no obligation to reimburse Junhan, Ant Financial or its subsidiaries for the cost associated with these awards.
The
awards meet the definition of a financial derivative. The cost relating to the share-based awards is recognized by us and the related expense is recognized over the requisite service
period in the consolidated income statements with a corresponding credit to additional paid-in capital. Subsequent changes in the fair value of the awards are recorded in the consolidated income
statements through the date on which the underlying awards are settled by Junhan. See note 8(d) to our audited consolidated financial statements included elsewhere in this annual report. The fair
values of the underlying equity are primarily determined by reference to the business enterprise value, or BEV, of Ant Financial which is based on the contemporaneous valuation reports or recent
financing transactions. Given that the determination of the BEV of Ant Financial requires judgments and is beyond our control, the magnitude of the related accounting impact is unpredictable and may
affect our consolidated income statements significantly.
As
of March 31, 2018, total unamortized share-based compensation expense related to our ordinary shares that we expect to recognize was RMB19,514 million
(US$3,111 million), with a weighted-average remaining requisite service period of 2.1 years. To the extent the actual forfeiture rate is different from what we have
anticipated, share-based compensation expense related to these awards will be different. Furthermore, share-based compensation expense will be affected by changes in the fair value of our shares, as
certain share-based awards were granted to non-employees where the unvested portions of the awards are re-measured at each reporting date through the vesting dates in the future. As of
March 31, 2018, 141,000 outstanding share options and 1,983,785 outstanding RSUs were held by non-employees, who consist primarily of employees of Ant Financial. In addition,
share-based compensation expense will also be affected by changes in the fair value of awards granted to our employees by Junhan, which is controlled by Jack Ma. Ant Financial has informed us that
they expect Junhan will also issue additional share-based awards to our employees from time to time in the future. In addition, since April 2018, Ant Financial, through a wholly-owned subsidiary, has
granted certain RSU awards to our employees.
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See
"Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Agreements and
Transactions Related to Ant Financial and its Subsidiaries — Ownership of Ant Financial and Alipay." The expenses associated with these awards will be recognized
across the functions in which the award recipients are employed and may continue to be significant in future periods.
Recognition of Income Taxes and Deferred Tax Assets/Liabilities
We are mainly subject to income tax in China, but are also subject to taxation on profit arising in or derived from the tax jurisdiction where
our subsidiaries are domiciled and operate outside China. Income taxes are assessed and determined on an entity basis. There are transactions (including entitlement to preferential tax treatment and
deductibility of expenses) where the ultimate tax determination is uncertain until the final tax position is confirmed by relevant tax authorities. In addition, we recognize liabilities for
anticipated tax audit issues based on estimates of whether additional taxes could be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, the
differences will impact the income tax and deferred tax provisions in the period in which the determination is made.
Deferred
income tax is recognized for all temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be
available in the future against which the temporary differences, the carry forward of unused tax credits and unused tax losses could be utilized. Deferred income tax is provided in full, using the
liability method. The deferred tax assets recognized are mainly related to the temporary differences arising from amortization of licensed copyrights and accrued expenses which are not deductible
until paid under the applicable PRC tax laws. We have also recognized deferred tax liabilities on the undistributed earnings generated by our subsidiaries in China, which are subject to withholding
taxes when they resolve to distribute dividends to us. As of March 31, 2018, we have fully accrued the withholding tax on the earnings distributable by all of our subsidiaries in China, except
for those undistributed earnings that we intend to invest indefinitely in China. If our intent changes or if these funds are in fact distributed outside of China, we would be required to accrue or pay
the withholding tax on some or all of these undistributed earnings and our effective tax rate would be adversely affected.
Fair Value Determination Related to the Accounting for Business Combinations
A component of our growth strategy has been to acquire and integrate complementary businesses into our ecosystem. We complete business
combinations from time to time which require us to perform purchase price allocations. In order to recognize the fair value of assets acquired and liabilities assumed, mainly consisting of intangible
assets and goodwill, as well as the fair value of any contingent consideration to be recognized, we use valuation techniques such as discounted cash flow analysis and ratio analysis in comparison to
comparable companies in similar industries under the income approach, market approach and cost approach. Major factors considered include historical financial results and assumptions including future
growth rates, an estimate of weighted average cost of capital and the effect of expected changes in regulation. Most of the valuations of our acquired businesses have been performed by independent
valuation specialists under our management's supervision. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and
estimates that market participants would use. However, these assumptions are inherently uncertain and actual results could differ from those estimates.
Fair Value Determination Related to Financial Instruments Accounted for at Fair Value
We have a significant amount of investments and liabilities that are classified as Level 2 and Level 3 according to ASC 820 "Fair
Value Measurement." The valuations for the investments and liabilities classified as Level 2 relating to financial derivatives, interest rate swaps and forward exchange contracts are provided
by independent third parties such as the custodian banks. The valuations for the investments and liabilities classified as Level 3 relating to investment securities accounted for under the fair
value option and contingent consideration in relation to investments and acquisitions are determined based on unobservable inputs, such as historical financial results
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and
assumptions about future growth rates, which require significant judgment to determine the appropriateness of these assumptions and estimates.
Impairment Assessment on Goodwill and Intangible Assets
We test annually, or whenever events or circumstances indicate that the carrying value of assets exceeds the recoverable amounts, whether
goodwill and intangible assets have suffered any impairment in accordance with the accounting policy stated in note 2 to our audited consolidated financial statements included elsewhere
in this annual report. For the impairment assessment on goodwill, we have elected to perform a qualitative assessment to determine whether the two-step impairment testing of goodwill is necessary. In
this assessment, we consider primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations.
Based on the qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than the carrying amount, the quantitative impairment test is performed.
For
the quantitative assessment of goodwill impairment, we identify the reporting units and compare the fair value of each reporting unit to its carrying amount, including goodwill. If
the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds
its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit's goodwill.
For
intangible assets other than licensed copyrights, we perform an impairment assessment whenever events or changes in circumstances indicate the carrying value of an asset may not be
recoverable. These assessments primarily use cash flow projections based on financial forecasts prepared by management and an estimated terminal value. The expected growth in revenues and operating
margin, timing of future capital expenditures, an estimate of weighted average cost of capital and terminal growth rate are based on actual and prior year performance and market development
expectations. The periods of the financial forecasts generally range from three to five years or a longer period if necessary. Judgment is required to determine key assumptions adopted in the cash
flow projections and changes to key assumptions can significantly affect these cash flow projections and the results of the impairment tests.
Impairment Assessment on Licensed Copyrights
We evaluate the program usefulness of licensed copyrights pursuant to the guidance in ASC 920
"Entertainment — Broadcasters" which provides that the rights be reported at the lower of unamortized cost or estimated net realizable value. When there is a
change in the expected usage of licensed copyrights, we estimate net realizable value of licensed copyrights to determine if any impairment exists. The net realizable value of licensed copyrights is
determined by estimating the expected cash flows from advertising, less any direct costs, over the remaining useful lives of the licensed copyrights. We monetize our licensed copyrights with branding
customers based on the different content channels available on our entertainment distribution platforms. Therefore, we estimate advertising cash flows for each category of content separately, such as
movies, television series, variety shows, animations and other video content. Estimates that impact advertising cash flows include anticipated levels of demand for our advertising services and the
expected selling prices of advertisements. Judgment is required to determine the key assumptions adopted in the cash flow projections and changes to key assumptions can significantly affect these cash
flow projections and the results of the impairment tests.
Impairment Assessment on Investments in Equity Investees
We continually review our investments in equity investees to determine whether a decline in fair value below the carrying value is
"other-than-temporary." The primary factors that we consider include:
-
•
-
the severity and length of time that the fair value of the investment is below its carrying value;
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-
•
-
the stage of development, the business plan, the financial condition, the sufficiency of funding and the operating performance of the investee
companies; strategic collaboration with and the prospects of the investee companies;
-
•
-
the geographic region, market and industry in which the investee companies operate; and
-
•
-
other entity specific information such as recent financing rounds completed by the investee companies and post balance sheet date fair value of
the investment.
Fair
value of the listed securities is subject to volatility and may be materially affected by market fluctuations. Judgment is required to determine the weighting and impact of the
aforementioned factors and changes to such determination can significantly affect the results of the impairment tests. The market value of our investment in Alibaba Pictures has remained below its
carrying value based on its quoted market prices since July 2015. The continued low market price combined with Alibaba Pictures' strategic decision in early 2018 to increase investments and
expenses for market share growth of its online movie ticketing business caused us to conclude that the decline in market value against our carrying value may be "other-than-temporary," which led us to
take an impairment loss of RMB18,116 million with respect to Alibaba Pictures during the year ended March 31, 2018. The impairment represented the difference between the market value and
our carrying value of this investment as of December 31, 2017. Our original investment amount in Alibaba Pictures was RMB4,955 million, which was paid in June 2014. As a result of
the placement of newly issued ordinary shares to third-party investors by Alibaba Pictures which diluted our equity interest from approximately 60% to 49.5%, we deconsolidated the financial results of
Alibaba Pictures in June 2015, and recognized a significant accounting gain of RMB24,734 million based on a revaluation of our remaining equity interest in Alibaba Pictures in accordance
with ASC 810, together with a corresponding significant increase to the carrying value of our investment in Alibaba Pictures. Nonetheless, the market value of our investment in Alibaba Pictures as of
March 31, 2018 remains well above our original investment amount that we paid in June 2014.
Depreciation and Amortization
The costs of property and equipment and intangible assets are charged ratably as depreciation and amortization expenses, respectively, over the
estimated useful lives of the respective assets using the straight-line method. We periodically review changes in technology and industry conditions, asset retirement activity and residual values to
determine adjustments to estimated remaining useful lives and depreciation and amortization rates. Actual economic lives may differ from estimated useful lives. Periodic reviews could result in a
change in estimated useful lives and therefore depreciation and amortization expenses in future periods.
Allowance for Doubtful Accounts Relating to VAT Receivables
VAT receivables mainly represent receivables from relevant PRC tax authorities in relation to OneTouch's VAT refund service. We record
allowances for doubtful accounts primarily on VAT receivables according to our best estimate of the losses inherent in the outstanding portfolio of VAT receivables. The collection periods for the VAT
receivables generally range from three to six months. We estimate the allowances by multiplying pre-determined percentages to the outstanding VAT receivable amounts based on the aging of the VAT
receivables or any events that may affect the collectability of the VAT receivables. We monitor the aging of the VAT receivables and assess the collectability of these VAT receivables. Judgment is
required to determine the allowance amounts and whether the amounts are adequate to cover potential bad debts, and periodic reviews are performed to ensure such amounts continue to reflect our best
estimate of the losses inherent in the outstanding portfolio of debts.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" and issued subsequent amendments to the
initial guidance or implementation guidance between August 2015 and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 (collectively,
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including
ASU 2014-09, "ASC 606"). ASC 606 supersedes the revenue recognition requirements in ASC 605 and requires entities to recognize revenue in a way that depicts the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective
retrospectively for us for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. The new guidance is required to be applied either
retrospectively to each prior reporting period presented (the "full retrospective method") or retrospectively with the cumulative effect of initially applying the guidance recognized at the
date of initial application (the "modified retrospective method"). We applied the new guidance beginning on April 1, 2018 using the modified retrospective method. Upon the adoption of
ASC 606, we began to recognize revenue relating to the non-cash consideration received from merchants for advertising barter transactions. The adoption of ASC 606 also impacted our revenue
recognition in other areas, including the estimation of variable consideration from merchants at contract inception, which affected the timing and the amount of revenue to be recognized. The
cumulative impact of these adjustments on retained earnings as of April 1, 2018 was not material.
In
January 2016, the FASB issued ASU 2016-01, "Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities" and issued certain technical corrections and improvements to the initial guidance within ASU 2018-03 in February 2018. ASU 2016-01 amends various
aspects of the recognition, measurement, presentation, and disclosure for financial instruments. The new guidance also simplifies the impairment assessment and enhances the disclosure requirements of
equity investments. The new guidance is effective for us for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. With respect to our
consolidated financial statements, the most significant impact relates to the accounting for equity investments (except for those accounted for under the equity method or those that result in the
consolidation of the investee). Under the new guidance, our equity investments are required to be measured at fair value with changes in fair value recognized in net income. For those investments
without readily determinable fair values, we will elect to record these investments at cost, less impairment, with subsequent adjustments for observable price changes. We applied the new guidance
beginning on April 1, 2018 and unrealized gains and losses for our available-for-sale securities recorded in accumulated other comprehensive income as of March 31, 2018 was reclassified
into retained earnings as of April 1, 2018.
In
February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" and issued certain transitional guidance and subsequent amendments within ASU 2018-01 and ASU 2018-10 in
January 2018 and July 2018, respectively. ASU 2016-02 creates a new topic in ASC 842 "Leases ("ASC 842")" to replace the current topic in ASC 840 "Leases," which increases
transparency and comparability among organizations by recognizing lease assets and lease liabilities in the consolidated balance sheet and disclosing key information about leasing arrangements.
ASU 842 affects both lessees and lessors, although for the latter the provisions are similar to the current model, but are updated to align with certain changes to the lessee model and
also the new revenue recognition provisions contained in ASC 606. The new guidance is effective for us for the year ending March 31, 2020 and interim reporting periods during the year ending
March 31, 2020. Early adoption is permitted. We are evaluating the effects of the adoption of ASC 842 and currently believes that it will impact the accounting of our operating leases.
In
June 2016, the FASB issued ASU 2016-13, "Financial Instruments — Credit Losses (Topic 326): Measurement on Credit Losses on Financial
Instruments," which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit
losses on certain types of financial instruments, including trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the
impairment model for available-for-sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss.
Further, the new guidance indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. The new
guidance is effective for us for the year ending March 31, 2021 and interim reporting periods during the year ending March 31, 2021. Early adoption is permitted for us for the year
ending March 31, 2020 and interim reporting periods during the year ending March 31, 2020. We are evaluating the effects, if any, of the adoption of this guidance on our financial
position, results of operations and cash flows.
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In
October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory," which amends the accounting for income taxes. The
new guidance requires recognition of income tax consequences of an intra-entity asset transfer, other than transfers of inventory, when the transfer occurs. For intra-entity transfers of inventory,
the income tax effects will continue to be deferred until the inventory has been sold to a third party. The new guidance is effective for us for the year ending March 31, 2019 and interim
reporting periods during the year ending March 31, 2019. The new guidance is required to be applied on a modified retrospective basis through a cumulative effect adjustment directly recorded to
retained earnings as of the beginning of the period of adoption. We do not expect that the adoption of this guidance will have a material impact on our financial position, results of operations and
cash flows.
In
November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which requires the amounts generally described as restricted cash and
restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new
guidance is effective for us for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. The guidance requires application using a
retrospective transition method. We believe that the adoption of this guidance will impact the presentation of our consolidated statements of cash flows.
In
January 2017, the FASB issued ASU 2017-04, "Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,"
which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test. Step two of the goodwill impairment test measures a goodwill
impairment loss by comparing the implied fair value of a reporting unit's goodwill with its carrying amount. The new guidance is effective prospectively for us for the year ending March 31,
2021 and interim reporting periods during the year ending March 31, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. We are evaluating the effects, if any, of the adoption of this guidance on our financial position, results of operations and cash flows.
In
May 2017, the FASB issued ASU 2017-09, "Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting," which provides
guidance about which changes to the terms or conditions of a
share-based payment award require an entity to apply modification accounting in ASC 718 "Compensation — Stock Compensation" ("ASC 718"). Under the new guidance, modification
accounting is required only if the fair value, the vesting condition, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The
new guidance is effective prospectively for us for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. We do not expect that the adoption
of this guidance will have a material impact on our financial position, results of operations and cash flows.
In
August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which simplifies the application of
hedge accounting and makes more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies
assess effectiveness. The new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test after the initial qualification, if the company can reasonably
support an expectation of high effectiveness throughout the term of the hedge. Also, for cash flow hedges and net investment hedges, if the hedge is highly effective, all changes in the fair value of
the derivative hedging instrument will be recorded in other comprehensive income. The new guidance is effective prospectively for us for the year ending March 31, 2020 and interim reporting
periods during the year ending March 31, 2020. Early adoption is permitted. We are evaluating the effects, if any, of the adoption of this guidance on our financial position, results of
operations and cash flows.
In
June 2018, the FASB issued ASU 2018-07, "Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting," which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to
non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based
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payment
transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The new guidance is effective for us for
the year ending March 31, 2020 and interim reporting periods during the year ending March 31, 2020. Early adoption is permitted. We are evaluating the effects of the adoption of this
guidance and currently believes that it will impact the accounting of the share-based awards granted to non-employees.
C. Research and Development, Patents and Licenses, etc.
Research and Development
We have built our core technology for our e-commerce and cloud computing businesses in-house. As of March 31, 2018, we employed over
24,000 research and development personnel engaged in building our technology platform and developing new online and mobile products. We recruit top and experienced talent locally and overseas,
and we have advanced training programs designed specifically for new campus hires.
Intellectual Property
We believe the protection of our trademarks, copyrights, domain names, trade names, trade secrets, patents and other proprietary rights is
critical to our business. We rely on a combination of trademark, fair trade practice, copyright and trade secret protection laws and patent protection in China and other jurisdictions, as well as
confidentiality procedures and contractual provisions to protect our intellectual property and our trademarks. We also enter into confidentiality and invention assignment agreements with all of our
employees, and we rigorously control access to our proprietary technology and information. As of March 31, 2018, we had 3,003 issued patents and 8,882 publicly filed patent
applications in China and 2,731 issued patents and 6,903 publicly filed patent applications in various countries and jurisdictions internationally. We do not know whether any of our
pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the current fiscal year
that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital reserves, or that caused the disclosed financial information to be not necessarily
indicative of future operating results or financial conditions.
E. Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements in fiscal years 2016, 2017 or 2018.
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F. Contractual Obligations
The following table sets forth our contractual obligations and commercial commitments as of March 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period
|
|
|
|
Total
|
|
Less than
1 Year
|
|
1 – 3
Years
|
|
3 – 5
Years
|
|
More than
5 Years
|
|
|
|
(in millions of RMB)
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
(1)
|
|
|
6,031
|
|
|
6,031
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Long-term borrowings
(2)
|
|
|
9,198
|
|
|
—
|
|
|
3,848
|
|
|
721
|
|
|
4,629
|
|
|
US$4.0 billion syndicated loan denominated in US$
(3)
|
|
|
25,109
|
|
|
—
|
|
|
—
|
|
|
25,109
|
|
|
—
|
|
|
Unsecured senior notes
(4)
|
|
|
85,996
|
|
|
—
|
|
|
14,123
|
|
|
9,416
|
|
|
62,457
|
|
|
Contractual Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
3,181
|
|
|
3,049
|
|
|
106
|
|
|
6
|
|
|
20
|
|
|
Construction in progress
|
|
|
2,607
|
|
|
1,075
|
|
|
1,434
|
|
|
98
|
|
|
—
|
|
|
Leases for office facility and transportation equipment
|
|
|
22,352
|
|
|
2,760
|
|
|
4,224
|
|
|
3,428
|
|
|
11,940
|
|
|
Licensed copyrights, co-location, bandwidth fees and marketing expenses
|
|
|
35,506
|
|
|
19,737
|
|
|
7,779
|
|
|
4,318
|
|
|
3,672
|
|
|
Investment commitments
(5)
|
|
|
15,174
|
|
|
15,174
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
205,154
|
|
|
47,826
|
|
|
31,514
|
|
|
43,096
|
|
|
82,718
|
|
|
|
|
|
|
|
|
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-
(1)
-
Excluding
estimated interest payments of RMB54 million assuming the applicable interest rates in effect as of March 31, 2018. The majority of the
borrowings are subject to floating interest rates.
-
(2)
-
Excluding
estimated interest payments of RMB2,191 million in total (RMB435 million, RMB609 million, RMB474 million and
RMB673 million over the periods of less than one year, one to three years, three to five years and more than five years from April 1, 2018, respectively), assuming the applicable
interest rates in effect as of March 31, 2018. Substantially all of the borrowings are subject to floating interest rates.
-
(3)
-
Excluding
estimated interest payments of RMB2,328 million in total (RMB752 million, RMB1,505 million and RMB71 million over the periods
of less than one year, one to three years and three to five years from April 1, 2018, respectively), assuming the applicable interest rate in effect as of March 31, 2018. The syndicated
loan is subject to a floating interest rate.
-
(4)
-
Excluding
estimated interest payments of RMB43,832 million in total (RMB3,009 million, RMB5,545 million, RMB4,913 million and
RMB30,365 million over the periods of less than one year, one to three years, three to five years and more than five years from April 1, 2018, respectively). The unsecured senior notes
are subject to fixed interest rates.
-
(5)
-
Including
the consideration for the investments in Kaiyuan and Shiji Retail of RMB3,362 million and US$486 million, respectively. Both of the
investments in Kaiyuan and Shiji Retail were completed in April 2018.
In
addition, according to our partnership arrangement with the International Olympic Committee, we will provide at least US$815 million worth of cash, cloud infrastructure
services and cloud computing services, as well as marketing and media support through 2028, in connection with various Olympic initiatives, events and activities, including the Olympic Games and the
Winter Olympic Games. As of March 31, 2018, the aggregate amount of cash to be paid and value of services to be provided in the future is approximately US$770 million.
G. Safe Harbor
See "Forward-Looking Statements."
166
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