v3.7.0.1
Document and Entity Information
12 Months Ended
Mar. 31, 2017
shares
Document and Entity Information  
Entity Registrant Name Alibaba Group Holding Ltd
Entity Central Index Key 0001577552
Document Type 20-F
Document Period End Date Mar. 31, 2017
Amendment Flag false
Current Fiscal Year End Date --03-31
Entity Well-known Seasoned Issuer Yes
Entity Voluntary Filers No
Entity Current Reporting Status Yes
Entity Filer Category Large Accelerated Filer
Entity Common Stock, Shares Outstanding 2,529,364,189
Document Fiscal Year Focus 2017
Document Fiscal Period Focus FY
v3.7.0.1
CONSOLIDATED INCOME STATEMENTS
¥ in Millions, shares in Millions, $ in Millions
12 Months Ended
Mar. 31, 2017
USD ($)
$ / shares
shares
Mar. 31, 2017
CNY (¥)
¥ / shares
shares
Mar. 31, 2016
CNY (¥)
¥ / shares
shares
Mar. 31, 2015
CNY (¥)
¥ / shares
shares
CONSOLIDATED INCOME STATEMENTS        
Revenue $ 22,994 ¥ 158,273 ¥ 101,143 ¥ 76,204
Cost of revenue (8,642) (59,483) (34,355) (23,834)
Product development expenses (2,479) (17,060) (13,788) (10,658)
Sales and marketing expenses (2,370) (16,314) (11,307) (8,513)
General and administrative expenses (1,778) (12,239) (9,205) (7,800)
Amortization of intangible assets (744) (5,122) (2,931) (2,089)
Impairment of goodwill   0 (455) (175)
Income from operations 6,981 48,055 29,102 23,135
Interest and investment income, net 1,244 8,559 52,254 9,455
Interest expense (388) (2,671) (1,946) (2,750)
Other income, net 884 6,086 2,058 2,486
Income before income tax and share of results of equity investees 8,721 60,029 81,468 32,326
Income tax expenses (2,002) (13,776) (8,449) (6,416)
Share of results of equity investees (730) (5,027) (1,730) (1,590)
Net income 5,989 41,226 71,289 24,320
Net (income) loss attributable to noncontrolling interests 356 2,449 171 (59)
Net income attributable to Alibaba Group Holding Limited 6,345 43,675 71,460 24,261
Accretion of Convertible Preference Shares       (15)
Dividends accrued on Convertible Preference Shares       (97)
Net income attributable to ordinary shareholders $ 6,345 ¥ 43,675 ¥ 71,460 ¥ 24,149
Earnings per share/ADS attributable to ordinary shareholders        
Basic | (per share) $ 2.55 ¥ 17.52 ¥ 29.07 ¥ 10.33
Diluted | (per share) $ 2.47 ¥ 16.97 ¥ 27.89 ¥ 9.70
Weighted average number of shares/ADS used in computing earnings per share/ADS (million shares)        
Basic | shares 2,493 2,493 2,458 2,337
Diluted | shares 2,573 2,573 2,562 2,500
v3.7.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
¥ in Millions, $ in Millions
12 Months Ended
Mar. 31, 2017
USD ($)
Mar. 31, 2017
CNY (¥)
Mar. 31, 2016
CNY (¥)
Mar. 31, 2015
CNY (¥)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME        
Net income $ 5,989 ¥ 41,226 ¥ 71,289 ¥ 24,320
Foreign currency translation:        
Change in unrealized gains (losses) (318) (2,191) 312 52
Less: reclassification adjustment for losses recorded in net income 6 44 21  
Net change (312) (2,147) 333 52
Available-for-sale securities:        
Change in unrealized gains 1,295 8,911 2,278 3,089
Less: reclassification adjustment for gains recorded in net income (838) (5,764) (422)  
Less: tax effect (151) (1,042) (488)  
Net change 306 2,105 1,368 3,089
Share of other comprehensive income of equity method investees        
Change in unrealized gains 113 780 65 13
Interest rate swaps under hedge accounting:        
Change in unrealized (losses) gains 63 433   (36)
Forward exchange contracts under hedge accounting:        
Change in unrealized (losses) gains 25 169 (168)  
Other comprehensive income 195 1,340 1,598 3,118
Total comprehensive income 6,184 42,566 72,887 27,438
Less: total comprehensive (income) loss attributable to noncontrolling interests 57 389 102 (56)
Total comprehensive income attributable to Alibaba Group Holding Limited $ 6,241 ¥ 42,955 ¥ 72,989 ¥ 27,382
v3.7.0.1
CONSOLIDATED BALANCE SHEETS
¥ in Millions, $ in Millions
Mar. 31, 2017
USD ($)
Mar. 31, 2017
CNY (¥)
Mar. 31, 2016
CNY (¥)
Current assets:      
Cash and cash equivalents $ 20,882 ¥ 143,736 ¥ 106,818
Short-term investments 437 3,011 4,700
Restricted cash and escrow receivables 386 2,655 1,346
Investment securities 589 4,054 4,178
Prepayments, receivables and other assets 4,222 29,060 16,993
Total current assets 26,516 182,516 134,035
Investment securities 4,569 31,452 29,392
Prepayments, receivables and other assets 1,169 8,051 5,837
Investment in equity investees 17,487 120,368 91,461
Property and equipment, net 2,936 20,206 13,629
Land use rights, net 682 4,691 2,876
Intangible assets, net 2,050 14,108 5,370
Goodwill 18,221 125,420 81,645
Total assets 73,630 506,812 364,245
Current liabilities:      
Current bank borrowings 864 5,948 4,304
Current unsecured senior notes 1,300 8,949  
Income tax payable 890 6,125 2,790
Escrow money payable 337 2,322  
Accrued expenses, accounts payable and other liabilities 6,855 47,186 27,334
Merchant deposits 1,190 8,189 7,314
Deferred revenue and customer advances 2,187 15,052 10,297
Total current liabilities 13,623 93,771 52,039
Deferred revenue 93 641 418
Deferred tax liabilities 1,475 10,154 6,471
Non-current bank borrowings 4,498 30,959 1,871
Non-current unsecured senior notes 6,665 45,876 51,391
Other liabilities 188 1,290 2,166
Total liabilities 26,542 182,691 114,356
Commitments and contingencies
Mezzanine equity 434 2,992 350
Alibaba Group Holding Limited shareholders' equity:      
Ordinary shares, US$0.000025 par value; 4,000,000,000 shares authorized as of March 31, 2016 and 2017; 2,473,927,859 and 2,529,364,189 shares issued and outstanding as of March 31, 2016 and 2017, respectively 1 1
Additional paid-in capital 23,911 164,585 132,206
Treasury shares, at cost (410) (2,823)  
Restructuring reserve (91) (624) (888)
Subscription receivables (9) (63) (172)
Statutory reserves 593 4,080 3,244
Accumulated other comprehensive income      
Cumulative translation adjustments (526) (3,618) (1,050)
Unrealized gains on available-for-sale securities, interest rate swaps and others 1,264 8,703 4,894
Retained earnings 15,772 108,558 78,752
Total Alibaba Group Holding Limited shareholders' equity 40,504 278,799 216,987
Noncontrolling interests 6,150 42,330 32,552
Total equity 46,654 321,129 249,539
Total liabilities, mezzanine equity and equity $ 73,630 ¥ 506,812 ¥ 364,245
v3.7.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 31, 2017
Mar. 31, 2016
CONSOLIDATED BALANCE SHEETS    
Ordinary shares- par value $ 0.000025 $ 0.000025
Ordinary shares- shares authorized 4,000,000,000 4,000,000,000
Ordinary shares, shares issued 2,529,364,189 2,473,927,859
Ordinary shares, shares outstanding 2,529,364,189 2,473,927,859
v3.7.0.1
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
¥ in Millions, $ in Millions
Total Alibaba Group Holding Limited shareholders' equity (deficits)
IPO
CNY (¥)
Total Alibaba Group Holding Limited shareholders' equity (deficits)
CNY (¥)
Ordinary Shares
IPO
shares
Ordinary Shares
CNY (¥)
shares
Additional paid-in capital
IPO
CNY (¥)
Additional paid-in capital
CNY (¥)
Treasury shares
CNY (¥)
Restructuring reserve
CNY (¥)
Subscription receivables
CNY (¥)
Statutory reserves
CNY (¥)
Cumulative translation adjustments
CNY (¥)
Unrealized gain (loss) on available-for-sale securities, interest rate swaps and others
CNY (¥)
Retained earnings (Accumulated deficits)
CNY (¥)
Noncontrolling interest
CNY (¥)
IPO
CNY (¥)
USD ($)
shares
CNY (¥)
shares
Balance at Mar. 31, 2014   ¥ 29,338   ¥ 1   ¥ 27,043 ¥ 0 ¥ 0 ¥ (540) ¥ 2,474 ¥ (1,144) ¥ 321 ¥ 1,183 ¥ 1,079     ¥ 30,417
Balance (in shares) at Mar. 31, 2014 | shares       2,226,810,660                          
Increase (Decrease) in Stockholders' Equity                                  
Foreign currency translation adjustment   59                 49 10   (7)     52
Net change in unrealized gains on available-for-sale securities   3,089                   3,089         3,089
Change in fair value of interest rate swaps under hedge accounting   (36)                   (36)         (36)
Share of other comprehensive income of equity method investees   13                   13         13
Net income for the year   24,261                     24,261 63     24,324
Liquidation and deconsolidation of subsidiaries                   (26)     26 (378)     (378)
Acquisition of subsidiaries   3,782       3,782               10,897     14,679
Acquisition of subsidiaries (in shares) | shares       8,876,755                          
Exercise of share options and vesting of early exercised options and RSUs, including repayment of related employee loans   676       516     160               676
Exercise of share options and vesting of early exercised options and RSUs, including repayment of related employee loans (in shares) | shares       20,240,334                          
Repurchase and retirement of ordinary shares   (256)       (13)     6       (249)       (256)
Repurchase and retirement of ordinary shares (in shares) | shares       (892,859)                          
Deemed disposals of partial interest in subsidiaries arising from exercise or vesting of share-based awards   (7)       (7)               17     10
Repurchase from, net of subscription, by noncontrolling interest for Partner Capital Investment Plan   (37)             (37)         (86)     (123)
Redemption of treasury shares granted for Senior Management Share Incentive Scheme   15       15               (15)      
Capital injection from noncontrolling interests                           174     174
Amortization of compensation cost   12,659       12,659               291     12,950
Issuance of ordinary shares ¥ 61,536       ¥ 61,536                   ¥ 61,536    
Issuance of ordinary shares (in shares) | shares     149,220,834                            
Excess value receivable arising from the restructuring of the commercial arrangements with Ant Financial Services and related amortization   166       1,318   (1,152)                 166
Conversion of convertible preferred shares   10,293       10,293                     10,293
Conversion of convertible preferred shares (In shares) | shares       91,243,312                          
Accretion to convertible preferred shareholders   (15)                     (15)       (15)
Dividend to convertible preferred shareholders   (97)                     (97)       (97)
Dividend declared by consolidated subsidiaries to noncontrolling interests                           (61)     (61)
Appropriation to statutory reserves                   267     (267)        
Balance at Mar. 31, 2015   145,439   ¥ 1   117,142 0 (1,152) (411) 2,715 (1,095) 3,397 24,842 11,974     157,413
Balance (in shares) at Mar. 31, 2015 | shares       2,495,499,036                          
Increase (Decrease) in Stockholders' Equity                                  
Foreign currency translation adjustment   240             (16)   24 232   56     296
Net change in unrealized gains on available-for-sale securities   1,368                   1,368         1,368
Change in fair value of forward exchange contracts under hedge accounting   (168)                   (168)         (168)
Share of other comprehensive income of equity method investees   65                   65         65
Net income for the year   71,460                     71,460 (158)     71,302
Liquidation and deconsolidation of subsidiaries   21                 21     (10,849)     (10,828)
Acquisition of subsidiaries                           31,409     31,409
Exercise of share options and vesting of early exercised options and RSUs, including repayment of related employee loans   774       519     255               774
Exercise of share options and vesting of early exercised options and RSUs, including repayment of related employee loans (in shares) | shares       25,016,386                          
Repurchase and retirement of ordinary shares   (19,795)       (2,774)             (17,021)       (19,795)
Repurchase and retirement of ordinary shares (in shares) | shares       (46,587,563)                          
Acquisition of additional shares of consolidated subsidiaries   (30)       (30)                     (30)
Redemption of treasury shares granted for Senior Management Share Incentive Scheme   13       13               (13)      
Capital injection from noncontrolling interests                           56     56
Amortization of compensation cost   16,434       16,434               80     16,514
Tax benefits from share-based awards   725       725                     725
Amortization of excess value receivable arising from the restructuring of the commercial arrangements with Ant Financial Services and others   441       177   264                 441
Dividend declared by consolidated subsidiaries to noncontrolling interests                           (3)     (3)
Appropriation to statutory reserves                   529     (529)        
Balance at Mar. 31, 2016   216,987   ¥ 1   132,206 0 (888) (172) 3,244 (1,050) 4,894 78,752 32,552     ¥ 249,539
Balance (in shares) at Mar. 31, 2016 | shares       2,473,927,859                       2,473,927,859 2,473,927,859
Increase (Decrease) in Stockholders' Equity                                  
Foreign currency translation adjustment   (2,307)             (17)   (2,612) 322   99     ¥ (2,208)
Net change in unrealized gains on available-for-sale securities   2,105                   2,105       $ 306 2,105
Share of additional paid-in capital and other comprehensive income of equity method investees   2,199       1,419           780         2,199
Change in fair value of forward exchange contracts under hedge accounting   169                   169       25 169
Change in fair value of interest rate swaps under hedge accounting   433                   433       63 433
Share of other comprehensive income of equity method investees                               113 780
Net income for the year   43,675                     43,675 (488)     43,187
Liquidation and deconsolidation of subsidiaries   44                 44           44
Acquisition of subsidiaries                           9,209     9,209
Exercise of share options and vesting of early exercised options and RSUs, including repayment of related employee loans   701       575     126               701
Exercise of share options and vesting of early exercised options and RSUs, including repayment of related employee loans (in shares) | shares       56,165,655                          
Repurchase and retirement of ordinary shares   (13,182)       (149)             (13,033)       (13,182)
Repurchase and retirement of ordinary shares (in shares) | shares       (27,054,014)                          
Acquisition of additional shares of consolidated subsidiaries   110       110               (450)     (340)
Deemed disposals of partial interest in subsidiaries arising from exercise or vesting of share-based awards   100       100               (58)     42
Redemption of treasury shares granted for Senior Management Share Incentive Scheme   13       13               (13)      
Capital injection from noncontrolling interests                           1,079     1,079
Amortization of compensation cost   15,610       15,610               487     16,097
Tax benefits from share-based awards   689       689                     689
Issuance of ordinary shares   11,189       14,012 (2,823)                   11,189
Issuance of ordinary shares (in shares) | shares       26,324,689                          
Amortization of excess value receivable arising from the restructuring of the commercial arrangements with Ant Financial Services and others   264           264                 264
Exercise of right of subscription by noncontrolling interest for Partner Capital Investment Plan                           100     100
Dividend declared by consolidated subsidiaries to noncontrolling interests                           (187)     (187)
Appropriation to statutory reserves                   836     (836)        
Balance at Mar. 31, 2017   ¥ 278,799   ¥ 1   ¥ 164,585 ¥ (2,823) ¥ (624) ¥ (63) ¥ 4,080 ¥ (3,618) ¥ 8,703 ¥ 108,558 ¥ 42,330   $ 46,654 ¥ 321,129
Balance (in shares) at Mar. 31, 2017 | shares       2,529,364,189                       2,529,364,189 2,529,364,189
v3.7.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS
¥ in Millions, $ in Millions
12 Months Ended
Mar. 31, 2017
USD ($)
Mar. 31, 2017
CNY (¥)
Mar. 31, 2016
CNY (¥)
Mar. 31, 2015
CNY (¥)
Cash flows from operating activities:        
Net income $ 5,989 ¥ 41,226 ¥ 71,289 ¥ 24,320
Adjustments to reconcile net income to net cash provided by operating activities:        
Revaluation of previously held equity interest (112) (770) (18,603) (6,535)
Gain on disposals of equity investees (78) (536) (3,089) (128)
Realized and unrealized gain related to investment securities (797) (5,488) (906) (178)
Change in fair value of other assets and liabilities (110) (759) 84 102
(Gain) Loss on disposals of subsidiaries 5 35 (26,913) (307)
Depreciation and amortization of property and equipment and land use rights 768 5,284 3,770 2,326
Amortization of intangible assets and licensed copyrights of video content 1,309 9,008 3,278 2,173
Tax benefits from share-based awards (199) (1,369) (1,120)  
Share-based compensation expense 2,324 15,995 16,082 13,028
Impairment of cost method equity investees and investment securities 334 2,298 1,864 419
Impairment of goodwill and licensed copyrights of video content 124 857 455 175
(Gain) Loss on disposals of property and equipment 5 34 (11) (13)
Amortization of restructuring reserve 38 264 264 166
Share of results of equity investees 730 5,027 1,730 1,590
Deferred income taxes 41 281 1,226 1,659
Allowance for doubtful accounts 244 1,680 483 861
Changes in assets and liabilities, net of effects of acquisitions and disposals:        
Escrow receivables (367) (2,528)   (851)
Prepayments, receivables and other assets (1,197) (8,237) (4,504) (14,138)
Income tax payable 683 4,698 1,237 1,410
Escrow money payable 367 2,528   837
Accrued expenses, accounts payable and other liabilities 772 5,312 7,757 10,494
Merchant deposits 127 875 113 2,490
Deferred revenue and customer advances 670 4,611 2,350 1,317
Net cash provided by operating activities 11,670 80,326 56,836 41,217
Cash flows from investing activities:        
(Increase) Decrease in short term investments, net 836 5,761 4,619 (1,113)
Decrease in restricted cash 66 452 746 1,139
(Increase) Decrease in trading securities, net 179 1,229 9 (16)
Payments for settlement of forward contracts (37) (256)    
Acquisitions of available-for-sale and held-to-maturity securities (679) (4,669) (15,363) (11,801)
Disposals of available-for-sale and held-to-maturity securities 633 4,354 2,177 939
Acquisitions of equity investees (5,728) (39,429) (37,625) (23,430)
Disposals of equity investees 718 4,941 10,021 99
Acquisitions of:        
Land use rights and construction in progress (774) (5,326) (5,407) (2,935)
Other property and equipment, intangible assets and licensed copyrights of video content (1,775) (12,220) (5,438) (4,770)
Cash paid for business combinations, net of cash acquired (4,860) (33,454) (1,495) (10,255)
Deconsolidation and disposal of subsidiaries, net of cash proceeds 36 250 4,890 (1,271)
Loans to employees, net of repayments   3 35 (40)
Net cash used in investing activities (11,385) (78,364) (42,831) (53,454)
Cash flows from financing activities:        
Issuance of ordinary shares, including repayment of loan and interest receivable on employee loans for the exercise of ordinary shares 2,122 14,607 693 61,831
Repurchase of ordinary shares (1,915) (13,182) (19,795) (270)
(Repurchase) Subscription of rights for Partner Capital Investment Plan 13 87   (123)
Payment of dividend on Convertible Preference Shares       (104)
Dividend paid by a consolidated subsidiary to noncontrolling interests (24) (163) (3) (61)
Capital injection from noncontrolling interest 218 1,501 56 174
Proceeds from deemed disposals of partial interest in subsidiaries, net of related costs 6 42   6
Tax benefits from share-based awards 100 689 725  
Proceeds from secured borrowings relating to micro loans       88,422
Repayment of secured borrowings relating to micro loans       (82,269)
Proceeds from current bank borrowings 9,922 68,296 28,208 25,804
Repayment of current bank borrowings (9,758) (67,169) (26,349) (24,734)
Proceeds from non-current bank borrowings 4,123 28,381 765 19,602
Repayment of non-current bank borrowings (25) (175) (146) (49,538)
Proceeds from unsecured senior notes       48,757
Net cash provided by (used in) financing activities 4,782 32,914 (15,846) 87,497
Effect of exchange rate changes on cash and cash equivalents 296 2,042 466 (112)
Increase (Decrease) in cash and cash equivalents 5,363 36,918 (1,375) 75,148
Cash and cash equivalents at beginning of year 15,519 106,818 108,193 33,045
Cash and cash equivalents at end of year 20,882 143,736 106,818 108,193
Supplemental disclosures of cash flow information:        
Payment of income taxes   9,652 6,465 3,458
Payment of interest   2,465 1,560 956
Business combinations:        
Cash paid for business combinations   (41,836) (3,055) (16,291)
Cash acquired in business combinations   8,382 1,560 6,036
Cash paid for business combinations, net of cash acquired $ (4,860) ¥ (33,454) (1,495) ¥ (10,255)
Restructuring of equity investments     ¥ 6,202  
v3.7.0.1
Organization and principal activities
12 Months Ended
Mar. 31, 2017
Organization and principal activities  
Organization and principal activities

 

1.     Organization and principal activities

Alibaba Group Holding Limited (the "Company," and where appropriate, the term "Company" also refers to its subsidiaries and consolidated variable interest entities ("VIEs") as a whole), was incorporated in the Cayman Islands on June 28, 1999. The Company is a holding company and conducts its businesses primarily through its subsidiaries and consolidated VIEs. The Company provides the fundamental technology infrastructure and marketing reach to help merchants, brands and other businesses to leverage the power of the Internet to engage with their users and customers in the People's Republic of China (the "PRC" or "China") and internationally. Major shareholders of the Company include SoftBank Group Corp. (formerly known as SoftBank Corp.) ("SoftBank") and Yahoo! Inc. ("Yahoo").

The Company has four operating and reportable segments, namely core commerce, cloud computing, digital media and entertainment, and innovation initiatives and others. The Company's core commerce segment is comprised of platforms operating in retail and wholesale commerce in China and internationally. Retail commerce in China operated by the Company primarily includes (i) the China mobile commerce destination ("Taobao Marketplace") and (ii) the China third-party platform for brands and retailers ("Tmall") (including Juhuasuan and Tmall Global). Wholesale commerce in China operated by the Company includes the China domestic wholesale marketplace ("1688.com"). International retail commerce operated by the Company includes (i) the global marketplace targeting consumers from around the world to buy directly from manufacturers and distributors in China ("AliExpress") and (ii) the e-commerce platforms in Southeast Asia ("Lazada") (Note 4(g)). International wholesale commerce operated by the Company includes the wholesale marketplace for global trade ("Alibaba.com").

The Company's cloud computing segment is comprised of Alibaba Cloud Computing, a provider of public cloud services which offers a complete suite of cloud services, including elastic computing, database, storage and content delivery network, large scale computing, security, management and application services, big data analytics and a machine learning platform for customers in different sizes across various industries.

The Company's digital media and entertainment segment operates businesses through the Company's media properties, primarily including Youku Tudou (Note 4(f)) and UCWeb (Note 4(k)).

The Company's innovation initiatives and others segment includes businesses such as the YunOS operating system, AutoNavi (Note 4(i)), DingTalk enterprise messaging and others.

The Company also participates in the logistics and local services sectors through investments in Cainiao Network (Note 4(x)) and Koubei (Note 4(ac)), respectively. In addition, the Company has a profit sharing interest in Ant Financial Services (Note 4(b)), the financial services group that operates Alipay.com Co., Ltd. ("Alipay"), a third-party online payment platform in China. The Company makes available online payment processing services ("Payment Services") on its marketplaces through an arrangement with Alipay.

 

 

v3.7.0.1
Summary of significant accounting policies
12 Months Ended
Mar. 31, 2017
Summary of significant accounting policies  
Summary of significant accounting policies

 

2.     Summary of significant accounting policies

(a)   Basis of presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

Translations of balances in the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows from Renminbi ("RMB") into the United States Dollar ("US$") as of and for the year ended March 31, 2017 are solely for the convenience of the readers and were calculated at the rate of US$1.00=RMB6.8832, representing the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on March 31, 2017. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on March 31, 2017, or at any other rate.

(b)   Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

(c)   Consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries, including the wholly-foreign owned enterprises ("WFOEs"), and VIEs for which the Company is the primary beneficiary. All transactions and balances among the Company, its subsidiaries and consolidated VIEs have been eliminated upon consolidation. The results of subsidiaries and consolidated VIEs acquired or disposed of are recorded in the consolidated income statements from the effective date of acquisition or up to the effective date of disposal, as appropriate.

A subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meeting of 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. A VIE is required to be consolidated by the primary beneficiary of the entity if the equity holders in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.

To comply with the PRC legal restrictions on foreign ownership of companies that operate Internet content and other restricted businesses, the Company operates its websites and engages in such restricted services in the PRC through certain PRC domestic companies, whose equity interests are held by certain management members or founders of the Company. The registered capital of these PRC domestic companies was funded by the Company through loans extended to certain management members or founders of the Company. The Company has entered into certain exclusive technical services agreements with these PRC domestic companies, which entitle it to receive a majority of their residual returns and make it obligatory for the Company to absorb a majority of the risk of losses from their activities. In addition, the Company has entered into certain agreements with those management members or founders, including loan agreements that require them to contribute registered capital to those PRC domestic companies, exclusive call option agreements to acquire the equity interests in these companies when permitted by the PRC laws, rules and regulations, equity pledge agreements of the equity interests held by those management members or founders, and proxy agreements that irrevocably authorize individuals designated by the Company to exercise the equity owner's rights over these PRC domestic companies.

Details of the typical VIE structure of the Company's significant consolidated VIEs, primarily domestic companies associated with the operations such as Taobao Marketplace, Tmall (including Juhuasuan and Tmall Global), 1688.com, AliExpress, Alibaba.com and Alibaba Cloud Computing, are set forth below:

(i)          

Contracts that give the Company effective control of VIEs

           

Loan agreements

           

Pursuant to the relevant loan agreements, the respective WFOEs have granted interest-free loans to the relevant VIE equity holders, which may only be used for the purpose of capital contributions to the relevant VIEs or as may be otherwise agreed by the WFOEs. The WFOEs may require acceleration of repayment at their absolute discretion. When the VIE equity holders make early repayment of the outstanding amount, the WFOEs or a third party designated by the WFOEs may purchase the equity interests in the VIEs at a price equal to the outstanding amount of the loan, subject to any applicable PRC laws, rules and regulations. The VIE equity holders undertake not to enter into any prohibited transactions in relation to the VIEs, including the transfer of any business, material assets, intellectual property rights or equity interests in the VIEs to any third party.

           

Exclusive call option agreements

           

The VIE equity holders have granted the WFOEs exclusive call options to purchase their equity interest in the VIEs at an exercise price equal to the higher of (i) the registered capital in the VIEs; and (ii) the minimum price as permitted by applicable PRC laws. Each relevant VIE has further granted the relevant WFOE an exclusive call option to purchase its assets at an exercise price equal to the book value of the assets or the minimum price as permitted by applicable PRC laws, whichever is higher. The WFOEs may nominate another entity or individual to purchase the equity interest or assets, if applicable, under the call options. Each call option is exercisable subject to the condition that applicable PRC laws, rules and regulations do not prohibit completion of the transfer of the equity interest or assets pursuant to the call option. Each WFOE is entitled to all dividends and other distributions declared by the VIE, and the VIE equity holders have agreed to give up their rights to receive any distributions or proceeds from the disposal of their equity interests in the VIE which are in excess of the original registered capital that they contributed to the VIE, and to pay any such distributions or premium to the WFOE. The exclusive call option agreements remain in effect until the equity interest or assets that are the subject of such agreements are transferred to the WFOEs.

           

Proxy agreements

           

Pursuant to the relevant proxy agreements, each of the VIE equity holders irrevocably authorizes any person designated by the WFOEs to exercise his rights as an equity holder of the VIEs, including the right to attend and vote at equity holders' meetings and appoint directors.

           

Equity pledge agreements

           

Pursuant to the relevant equity pledge agreements, the relevant VIE equity holders have pledged all of their interests in the equity of the VIEs as a continuing first priority security interest in favor of the corresponding WFOEs to secure the outstanding amounts advanced under the relevant loan agreements described above and to secure the performance of obligations by the VIEs and/or the equity holders under the other structure contracts. Each WFOE is entitled to exercise its right to dispose of the VIE equity holders' pledged interests in the equity of the VIE and has priority in receiving payment by the application of proceeds from the auction or sale of such pledged interests, in the event of any breach or default under the loan agreement or other structure contracts, if applicable. These equity pledge agreements remain in force for the duration of the relevant loan agreement and other structure contracts. These equity pledges have been registered with the relevant office of the Administrations for Industry and Commerce in the PRC.

(ii)          

Contracts that enable the Company to receive substantially all of the economic benefits from the VIEs

 

Exclusive technical services agreements

 

Each relevant VIE has entered into an exclusive technical services agreement with the respective WFOE, pursuant to which the relevant WFOE provides exclusive technical services to the VIE. In exchange, the VIE pays a service fee to the WFOE which typically amount to what would be substantially all of the VIE's pre-tax profit, resulting in a transfer of substantially all of the profits from the VIE to the WFOE.

 

Other arrangements

 

The exclusive call option agreements described above also enable the Company to receive substantially all of the economic benefits from the VIEs by typically entitling the WFOEs to all dividends and other distributions declared by the VIEs and to any distributions or proceeds from the disposal by the VIE equity holders of their equity interests in the VIEs that are in excess of the original registered capital that they contributed to the VIEs.

Based on these contractual agreements, the Company believes that the PRC domestic companies as described above should be considered as VIEs because the equity holders do not have significant equity at risk nor do they have the characteristics of a controlling financial interest. Given that the Company is the primary beneficiary of these PRC domestic companies, the Company believes that these VIEs should be consolidated based on the structure as described above.

The following financial information of the consolidated VIEs in the PRC was recorded in the accompanying consolidated financial statements:

                                                                                                                                                                                    

 

 

 

As of March 31,

 

 

 

 

2016

 

2017

 

 

 

 

(in millions of RMB)

 

 

Cash and cash equivalents and short-term investments

 

 

3,978

 

 

7,586

 

 

Investment in equity investees and securities

 

 

11,605

 

 

17,371

 

 

Accounts receivable, net of allowance

 

 

681

 

 

3,301

 

 

Amounts due from non-VIE subsidiaries of the Company

 

 

511

 

 

1,400

 

 

Prepayment for licensed copyrights of video content

 

 

 

 

1,469

 

 

Property and equipment and intangible assets

 

 

1,218

 

 

4,738

 

 

Others

 

 

1,753

 

 

2,926

 

 

Total assets

 

 

19,746

 

 

38,791

 

 

Amounts due to non-VIE subsidiaries of the Company

 

 

12,372

 

 

25,317

 

 

Accruals for purchase of licensed copyrights of video content

 

 

 

 

2,244

 

 

Accrued expenses, account payable and other liabilities

 

 

2,624

 

 

7,545

 

 

Deferred revenue and customer advances

 

 

1,806

 

 

3,338

 

 

Deferred tax liabilities

 

 

219

 

 

1,481

 

 

Total liabilities

 

 

17,021

 

 

39,925

 

                                                                                                                                                                                    

 

 

Year ended March 31,

 

 

 

2015

 

2016

 

2017

 

 

 

(in millions of RMB)

 

Revenue (i)

 

 

10,457

 

 

8,558

 

 

24,712

 

Net income (loss) (i)

 

 

659

 

 

35

 

 

(4,688

)

Net cash (used in) provided by operating activities

 

 

(7,343

)

 

1,224

 

 

3,220

 

Net cash used in investing activities

 

 

(5,502

)

 

(7,160

)

 

(2,557

)

Net cash provided by financing activities

 

 

13,018

 

 

6,494

 

 

2,688

 

                                                                                                                                                                                    

(i)          

Revenue and net income (loss) earned and incurred by the consolidated VIEs are primarily from mobile media and entertainment services, cloud computing services as well as the businesses of providing display marketing on the Company's retail marketplaces and others.

The consolidated VIEs did not have any material related party transactions except for those transacted with non-VIE subsidiaries of the Company which were eliminated in these consolidated financial statements. Such related party transactions are disclosed in Note 22 or elsewhere in these consolidated financial statements.

Under the contractual arrangements with the consolidated VIEs, the Company has the power to direct activities of the consolidated VIEs and can have assets transferred out of the consolidated VIEs under its control. Therefore, the Company considers that there is no asset in any of the consolidated VIEs that can be used only to settle obligations of the consolidated VIEs, except for registered capital and PRC statutory reserves. As all consolidated VIEs are incorporated as limited liability companies under the Company Law of the PRC, creditors of the consolidated VIEs do not have recourse to the general credit of the Company for any of the liabilities of the consolidated VIEs.

Currently there is no contractual arrangement which requires the Company to provide additional financial support to the consolidated VIEs. However, as the Company conducts its businesses primarily based on the licenses and approvals held by its consolidated VIEs, the Company has provided and will continue to provide financial support to the consolidated VIEs considering the business requirements of the consolidated VIEs, as well as the Company's own business objectives in the future.

Unrecognized revenue-producing assets held by the consolidated VIEs include certain Internet content provision and other licenses, domain names and trademarks. The Internet content provision and other licenses are required under relevant PRC laws, rules and regulations for the operation of Internet businesses in the PRC, and therefore are integral to the Company's operations. The Internet content provision licenses require that core PRC trademark registrations and domain names are held by the consolidated VIEs that provide the relevant services.

(d)  Business combinations and noncontrolling interests

The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification ("ASC") 805 "Business Combinations." The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total costs of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated income statements. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated income statements.

In a business combination achieved in stages, the Company re-measures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in the consolidated income statements.

When there is a change in ownership interests or a change in contractual arrangements that results in a loss of control of a subsidiary or consolidated VIE, the Company deconsolidates the subsidiary or consolidated VIE from the date control is lost. Any retained noncontrolling investment in the former subsidiary or consolidated VIE is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary or consolidated VIE.

For the Company's majority-owned subsidiaries and consolidated VIEs, a noncontrolling interest is recognized to reflect the portion of their equity which is not attributable, directly or indirectly, to the Company. When the noncontrolling interest is contingently redeemable upon the occurrence of a conditional event, which is not solely within the control of the Company, the noncontrolling interest is classified as mezzanine equity. The Company accretes changes in the redemption value over the period from the date that it becomes probable that the mezzanine equity will become redeemable to the earliest redemption date using the effective interest method. Consolidated net income (loss) on the consolidated income statements includes net income (loss) attributable to noncontrolling interests and mezzanine equity holders when applicable. Net income (loss) attributable to mezzanine equity holders is included in net income (loss) attributable to noncontrolling interests on the consolidated income statements, while it is excluded from the consolidated statements of changes in shareholders' equity. During the year ended March 31, 2017, net loss attributable to mezzanine equity holders amounted to RMB1,961 million. The cumulative results of operations attributable to noncontrolling interests, along with adjustments for share-based compensation expense arising from outstanding share-based awards relating to subsidiaries' shares, are also recorded as noncontrolling interests in the Company's consolidated balance sheets. Cash flows related to transactions with noncontrolling interests are presented under financing activities in the consolidated statements of cash flows.

(e)   Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (the "CODM"), which is comprised of certain members of the Company's management team. Historically, the Company had one single operating and reportable segment, namely the provision of online and mobile commerce and related services. Starting from the year ended March 31, 2017, the Company implemented operational changes in how the CODM manages the businesses of the Company to maximize efficiency in allocating resources and assessing performance. Consequently, the Company presents four operating and reportable segments as set out in Notes 1 and 26 to reflect the change.

(f)   Foreign currency translation

The functional currency of the Company is US$ and reporting currency of the Company is RMB. The Company's subsidiaries and consolidated VIEs with operations in the PRC, Hong Kong, the United States and other jurisdictions generally use their respective local currencies as their functional currencies. The financial statements of the Company's subsidiaries and consolidated VIEs, other than the subsidiaries and consolidated VIEs with the functional currency of RMB, are translated into RMB using the exchange rate as of the balance sheet date for assets and liabilities and the average daily exchange rate for each month for income and expense items. Translation gains and losses are recorded in accumulated other comprehensive income or loss as a component of shareholders' equity.

In the financial statements of the Company's subsidiaries and consolidated VIEs, transactions in currencies other than the functional currency are measured and recorded in the functional currency using the exchange rate in effect at the date of the transaction. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the functional currency are translated into the functional currency using the exchange rate at the balance sheet date. All gains and losses arising from foreign currency transactions are recorded in the consolidated income statements during the year in which they occur.

(g)   Revenue recognition

Revenue is principally comprised of online marketing services revenue, commissions on transactions, membership and storefront fees and cloud computing services revenue. Revenue represents the fair value of the consideration received or receivable for the provision of services in the ordinary course of the Company's activities and is recorded net of value-added tax ("VAT"). Consistent with the criteria of ASC 605 "Revenue Recognition" ("ASC 605"), the Company recognizes 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.

Revenue arrangements with multiple deliverables are divided into separate units of accounting. 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. Revenue arrangements with multiple deliverables primarily relate to the sale of membership packages and online marketing services on wholesale marketplaces and Youku Tudou's platforms, which are not significant to the Company's total revenue.

In accordance with ASC 605, the Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When the Company is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenue is recorded on a gross basis. When the Company is not the primary obligor, does not bear the inventory risk and does not have the ability to establish the price, revenue is recorded on a net basis.

When services are exchanged or swapped for other services, the exchange is regarded as a revenue-generating transaction. The amount of revenue recognized for barter transactions was not material for each of the periods presented.

Revenue recognition policies for each type of service are analyzed as follows:

Online marketing services revenue

The Company receives service fees from merchants on the retail and wholesale marketplaces for pay for performance ("P4P") marketing services, display marketing, placement services and Taobaoke program on the Company's marketplaces and certain third party marketing affiliates' websites. In addition, the Company receives services fees from marketers for P4P marketing services and display marketing on UCWeb mobile media. Furthermore, the Company receives service fees from marketers for display marketing on Youku Tudou's platforms.

P4P marketing services allow merchants and marketers to bid for keywords that match product or service listings appearing in search or browser results on the Company's marketplaces and UCWeb mobile media. In general, merchants and marketers prepay for P4P marketing services and the related revenue is recognized when a user clicks their product or service listings. The positioning of such listings and the price for such positioning are determined through an online auction system, which facilitates price discovery through a market-based mechanism.

Display marketing allows merchants and marketers to place advertisements in particular areas of a web page of the Company's marketplaces and UCWeb mobile media, at fixed prices or prices established by a real-time bidding system, in particular formats and over particular periods of time. In general, merchants and marketers need to prepay for display marketing and revenue is recognized ratably over the period in which the advertisement is displayed or when an advertisement appears on pages clicked or viewed by users.

Display marketing also allows marketers to place advertisements on Youku Tudou's platforms in different formats, including video, banners, links, logos, and buttons. Advertising contracts are signed to establish the fixed price and advertising services to be provided. Revenue is recognized ratably over the performance period.

In delivery of these online marketing services, the Company, through the third-party marketing affiliate program, also places the P4P marketing services content of the participating merchants on third-party websites in the forms of picture or text links through contextual relevance technology to match merchants' marketing content to the textual content of the third-party website and the users' attributes based on the Company's systems and algorithms. When such links on third-party websites are clicked, users are diverted to a landing page of the Company's marketplaces where listings of the participating merchant as well as similar products or services of other merchants are presented. These other merchants may include those also participating in the online marketing services through the third-party marketing affiliate program or those only purchasing online marketing services on the Company's own marketplaces, as well as, in some cases, those who do not purchase online marketing services at all. Revenue is only recognized when such users further click on the P4P marketing content on such landing pages. In limited cases, the Company may embed a search box for one of its marketplaces on such third-party websites, and when a keyword is input into the search box, the user will be diverted to the Company's website where search results are presented and revenue can be generated through a similar mechanism. For third-party marketing affiliates with whom the Company has an arrangement to share such revenue, traffic acquisition cost is also recognized at the same time if the P4P marketing content on the landing page clicked by the users is from merchants participating in the third-party marketing affiliate program. The Company places display marketing content on third-party websites in a similar manner. A substantial portion of online marketing services revenue generated through the third-party marketing affiliate program represented P4P marketing services revenue for each of the years presented. P4P marketing services revenue as well as display marketing revenue generated on the Company's marketplaces or through the third-party marketing affiliate program are recorded on a gross basis principally because the Company is the primary obligor to the merchants in the arrangements.

The Company receives placement services fees from merchants on promotional slots for a specified period on the Company's Juhuasuan marketplace and recognizes those fees as revenue when the underlying promotional services are provided.

In addition, the Company offers the Taobaoke program which generates commissions from merchants for transactions completed and settled by consumers sourced from certain third party marketing affiliates' websites. The Company's portion of commission revenue generated through third party marketing affiliates' websites is recognized at the time when the underlying transaction is completed and is recorded on a net basis principally because the Company is not the primary obligor as it does not have latitude in establishing prices or does not have inventory risk. In certain occasions where the Company is obligated to pay for website inventory costs in fixed amounts to third-party marketing affiliates regardless of whether commission revenue is generated from these marketing affiliates or where the Company is the primary obligor of the arrangement, such commission revenue is recorded on a gross basis.

Commissions on transactions

The Company earns commissions from merchants when transactions are completed and settled on certain retail marketplaces of the Company. Such commissions are generally determined as a percentage based on the value of merchandise being sold by the merchants. Revenue related to commissions is recognized in the consolidated income statements at the time when the underlying transaction is completed.

Membership and storefront fees

The Company earns membership revenue from wholesale sellers in respect of the sale of membership packages and subscriptions which allow them to host premium storefronts on the Company's wholesale marketplaces, and from customers in respect of the sale of membership packages which allow them to access premium content on Youku Tudou's paid content platforms. The Company also earns revenue from merchants who subscribe to Wangpu, the Company's storefront software that includes a suite of tools that assist merchants in upgrading, decorating and managing their storefronts on retail marketplaces. These service fees are paid in advance for a specific contracted service period. All these fees are initially deferred when received and revenue is recognized ratably over the term of the respective service contracts as the services are provided.

Cloud computing

The Company earns cloud computing revenue from the provision of services such as elastic computing, database, storage and content delivery network, large scale computing, security, management and application services, big data analytics and a machine learning platform, as well as from web-hosting and domain name registration. Revenue is recognized at the time when the services are provided or ratably over the term of the service contracts as appropriate.

Interest and other income

Interest income on micro loans is recognized as other revenue using the effective interest method which is reviewed and adjusted periodically based on changes in estimated cash flows. The Company disposed of certain equity interests and assets primarily relating to the micro loan business and related services and ceased to generate interest income on micro loans upon the completion of the restructuring of Payment Services during the year ended March 31, 2015 (Note 4(b)). Other interest income is recognized on a time-proportion basis using the effective interest method, and is classified as interest and investment income, net in the consolidated income statements. Other than the above, receipts of fees in respect of all other incidental services provided by the Company, including mobile value-added services, are recognized when services are delivered and the amounts relating to such incidental services are not material to the Company's total revenue.

(h)  Cost of revenue

Cost of revenue consists primarily of staff costs and share-based compensation expense, content costs and expenses, payment processing fees associated with the operation of the Company's websites, such as bandwidth and co-location fees, depreciation and maintenance costs for computers, servers, call centers and other equipment, traffic acquisition costs, logistics costs and other related incidental expenses that are directly attributable to the Company's principal operations.

(i)   Product development expenses

Product development expenses consist primarily of staff costs and share-based compensation expense and other related incidental expenses that are directly attributable to the development, maintenance and enhancement of the infrastructure, applications, operating systems, software, database and network for the Company's marketplaces, mobile products, transaction and service platforms as well as entertainment distribution platforms. In addition, royalty fees accrued and paid to Yahoo up to the closing of the Company's initial public offering in September 2014 were recorded as part of product development expenses (Note 22).

The Company expenses all costs that are incurred in connection with the planning and implementation phases of development and costs that are associated with repair or maintenance of the existing websites or the development of software and website content. Costs incurred in the development phase are capitalized and amortized over the estimated product life. However, since the inception of the Company, the amount of costs qualifying for capitalization has been insignificant and as a result, all website and software development costs have been expensed as incurred.

(j)   Sales and marketing expenses

Sales and marketing expenses consist primarily of online and offline advertising expenses, promotion expenses, sales commissions, staff costs and share-based compensation expense and other related incidental expenses that are incurred directly to attract or retain consumers and merchants for the Company's marketplaces, mobile products, transaction and service platforms as well as entertainment distribution platforms.

The Company expenses the costs of producing advertisements at the time production occurs, and expenses the costs of delivering advertisements in the period in which the advertising space or airtime is used. Advertising and promotional expenses totaled RMB4,090 million, RMB5,524 million and RMB8,799 million during the years ended March 31, 2015, 2016 and 2017, respectively.

(k)   Share-based compensation

Share-based awards granted to the Company's employees are measured at fair value on grant date and share-based compensation expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the accelerated attribution method, net of estimated forfeitures, over the requisite service period. The fair value of share options is determined using the Black-Scholes valuation model and the fair value of restricted shares and restricted share units ("RSUs") is determined with reference to the fair value of the underlying shares. Share-based awards granted to non-employees are initially measured at fair value on the grant date and re-measured at each reporting date through the vesting date. Such value is recognized as expense over the respective service period, net of estimated forfeitures. Share-based compensation expense, when recognized, is charged to the consolidated income statements with the corresponding entry to additional paid-in capital, liability or noncontrolling interests as disclosed in Note 2(d).

At each date of measurement, the Company reviews internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based awards granted by the Company, including the fair value of the underlying shares, expected life, expected volatility and expected forfeiture rates. As the Company was a private company prior to its initial public offering (Note 4(a)), the sources utilized to determine those attributes at the date of measurement were subjective in nature and required the Company to use judgment in applying such information to the share valuation models. The Company was required to consider many factors and made certain assumptions during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation expense may differ materially in the future from that recorded in the current reporting period.

(l)   Other employee benefits

The Company's subsidiaries and consolidated VIEs in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. The relevant labor regulations require the Company's subsidiaries and consolidated VIEs in the PRC to pay the local labor and social welfare authorities monthly contributions at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor and social welfare authorities are responsible for meeting all retirement benefits obligations and the Company's subsidiaries and consolidated VIEs in the PRC have no further commitments beyond their monthly contributions. The contributions to the plan are expensed as incurred. During the years ended March 31, 2015, 2016 and 2017, contributions to such plan amounting to RMB1,601 million, RMB2,094 million and RMB2,710 million, respectively, were charged to the consolidated income statements.

The Company also makes payments to other defined contribution plans for the benefit of employees employed by subsidiaries outside of the PRC. Amounts contributed during the years ended March 31, 2015, 2016 and 2017 were insignificant.

(m) Income taxes

The Company accounts for income taxes using the liability method, under which deferred income taxes are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized as income or expense in the period that includes the enactment date. Valuation allowance is provided on deferred tax assets to the extent that it is more likely than not that the asset will not be realizable in the foreseeable future.

Deferred taxes are also recognized on the undistributed earnings of subsidiaries, which are presumed to be transferred to the parent company and are subject to withholding taxes, unless there is sufficient evidence to show that the subsidiary has invested or will invest the undistributed earnings indefinitely or that the earnings will be remitted in a tax-free liquidation.

The Company adopts ASC 740 "Income Taxes" which prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The Company did not have significant unrecognized uncertain tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of and for the years ended March 31, 2015, 2016 and 2017.

(n)  Government grants

For government grants that are non-operating in nature and with no further conditions to be met, the amounts are recognized as income in other income, net upon receipt. For government grants that contain certain operating conditions, the amounts are recorded as liabilities upon receipt, and are recognized in the consolidated income statements as a reduction of the related costs for which the grants are intended to compensate when the conditions are met.

(o)   Leases

Leases are classified as either capital or operating leases. Leases that transfer substantially all the benefits and risks incidental to the ownership of assets are accounted for as capital leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments are recognized in the consolidated income statements on a straight-line basis over the lease terms. The Company had no significant capital leases for the years ended March 31, 2015, 2016 and 2017.

(p)  Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Cash and cash equivalents of the Company primarily represent bank deposits, fixed deposits with maturities less than three months and investments in money market funds. As of March 31, 2016 and 2017, the Company had certain amounts of cash held in accounts managed by Alipay in connection with the provision of online and mobile commerce and related services for a total amount of RMB786 million and RMB991 million, respectively, which have been classified as cash and cash equivalents on the consolidated balance sheets.

(q)  Short-term investments

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 the Company has the intention to redeem within one year. As of March 31, 2016 and 2017, the fixed deposits that were recorded as short-term investments amounted to RMB97 million and RMB1,075 million, respectively. As of the same dates, the Company had certain amounts of short-term investments held in accounts managed by Alipay for a total amount of RMB2,564 million and RMB982 million, respectively.

(r)   VAT receivables

VAT receivables mainly represent the advance settlement of relevant VAT refund amounts provided by OneTouch (Note 4(l)) to its customers prior to receiving such VAT refund from tax authorities. Such amounts are recorded at the claimed refund amount less allowance for doubtful accounts relating to VAT receivables, and include accrued interest receivable as of the balance sheet date. Allowance for doubtful accounts relating to VAT receivables represent the Company's best estimate of the losses inherent in the outstanding portfolio of VAT receivables. The collection periods related to the VAT receivables generally range from three to six months. Judgment is required to determine the allowance amounts and whether such amounts are adequate to cover potential bad debts, and periodic reviews are performed to ensure such amounts continue to reflect the best estimate of the losses inherent in the outstanding portfolio of debts. For the years ended March 31, 2015, 2016 and 2017, allowance for doubtful accounts relating to VAT receivables amounting to nil, RMB474 million and RMB1,321 million were recorded in cost of revenue in the consolidated income statements, respectively. The allowance for doubtful accounts for VAT receivables were recorded within the Company's core commerce segment. For the years ended March 31, 2015, 2016 and 2017, the charge-offs and recoveries in relation to the allowance for doubtful accounts relating to VAT receivables were insignificant.

(s)   Investment securities

The classification of investment securities is based on the Company's intent, which is re-evaluated periodically, with respect to those securities. Investment securities classified as trading securities, comprising of listed equity securities and financial derivatives such as warrants and equity swaps used as market access products to invest in listed equity securities in the PRC, are carried at fair value with realized or unrealized gains and losses recorded in the consolidated income statements. The securities that the Company has positive intent and ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost. The maturities of the held-to-maturity securities held by the Company generally range from one to ten years. Other investment securities classified as available-for-sale are carried at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss) as a component of shareholders' equity. Realized gains and losses and provision for decline in value judged to be other-than-temporary, if any, are recognized in the consolidated income statements. In computing realized gains and losses on available-for-sale securities, the Company determines cost based on amounts paid, including direct costs such as commissions to acquire the security, using the average cost method. Other than the above, the Company has elected the fair value option for certain investments including convertible and exchangeable bonds subscribed. Such fair value option permits the irrevocable fair value option election on an instrument-by-instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The investments accounted for under the fair value option are carried at fair value with realized or unrealized gains and losses recorded in the consolidated income statements.

Interest income from investment securities is recognized using the effective interest method which is reviewed and adjusted periodically based on changes in estimated cash flows. Dividend income is recognized when the right to receive the payment is established.

(t)   Investment in equity investees

Equity investments represent the Company's investments in privately held companies and listed securities. The Company applies the equity method to account for an equity investment in common stock or in-substance common stock, according to ASC 323 "Investment — Equity Method and Joint Ventures," over which it has significant influence but does not own a majority equity interest or otherwise control.

An investment in in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock. The Company considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment in an entity is substantially similar to an investment in that entity's common stock.

Under the equity method, the Company's share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated income statements and its share of post-acquisition movements in accumulated other comprehensive income is recognized in shareholders' equity. The Company records its share of the results of such equity investees on a one quarter in arrears basis. The excess of the carrying amount of the investment over the underlying equity in net assets of the equity investee represents goodwill and intangible assets acquired. When the Company's share of losses in the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee.

For other equity investments that are not considered as debt securities or equity securities that have readily determinable fair values and over which the Company neither has significant influence nor control through investment in common stock or in-substance common stock, the cost method is used.

Under the cost method, the Company carries the investment at cost and recognizes income to the extent of dividends received from the distribution of the equity investee's post-acquisition profits.

(u)  Property and equipment

Property and equipment are stated at cost less accumulated depreciation and amortization and any provision required for impairment in value. Depreciation and amortization are computed using the straight-line method with no residual value based on the estimated useful lives of the various classes of assets, which range as follows:

                                                                                                                                                                                    

 

Computer equipment and software

 

3 – 5 years

 

Furniture, office and transportation equipment

 

3 – 5 years

 

Buildings

 

20 – 50 years

 

Leasehold improvements

 

shorter of remaining lease period or estimated useful life

Construction in progress represents buildings and related premises under construction, which is stated at actual construction cost less any impairment loss. Construction in progress is transferred to the respective category of property and equipment when completed and ready for its intended use.

Costs of repairs and maintenance are expensed as incurred and asset improvements are capitalized. The cost and related accumulated depreciation and amortization of assets disposed of or retired are removed from the accounts, and any resulting gain or loss is reflected in the consolidated income statements.

(v)   Land use rights

Land use rights represent lease prepayments to the local government authorities. Land use rights are carried at cost less accumulated amortization and impairment losses. Amortization is provided to write off the cost of lease prepayments on a straight-line basis over the period of the right which is 40 – 70 years.

(w)  Intangible assets other than licensed copyrights of video content

Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the "contractual-legal" or "separability" criterion. Purchased intangible assets and intangible assets arising from the acquisitions of subsidiaries and consolidated VIEs are recognized and measured at fair value upon acquisition. Separately identifiable intangible assets that have determinable lives continue to be amortized over their estimated useful lives using the straight-line method as follows:

                                                                                                                                                                                    

 

User base and customer relationships

 

1 – 6 years

 

Trade names, trademarks and domain names

 

3 – 20 years

 

Developed technology and patents

 

2 – 5 years

 

Non-compete agreements

 

over the contracted term from 2 – 6 years

(x)   Licensed copyrights of video content

Licensed copyrights related to titles to movies, television series, variety shows, animations and other video content acquired from external parties are carried at the lower of unamortized cost or net realizable value. The terms of the licenses for professionally produced content vary depending on the type of content and producers, but the terms for movies and television serial dramas typically range from six months to ten years. Licensed copyrights of video content are presented on the consolidated balance sheets as current assets under prepayments, receivables and other assets and non-current assets under intangible assets, net, based on estimated time of usage. Licensed copyrights of video content are generally amortized using an accelerated method based on historical viewership consumption patterns. Estimates of the consumption patterns for licensed copyrights of video content are reviewed periodically and revised, if necessary. Amortization expenses in connection with the licensed copyrights of video content of RMB84 million, RMB347 million and RMB3,886 million were recorded in cost of revenue in the consolidated income statements for the years ended March 31, 2015, 2016 and 2017, respectively. The amortization expenses for the licensed copyrights of video content were recorded within the Company's digital media and entertainment segment.

On a periodic basis, the Company evaluates the program usefulness of its licensed copyrights of video content pursuant to the guidance in ASC 920 "Entertainment — Broadcasters" which provides that such 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 of video content, the Company estimates net realizable value of licensed copyrights of video content to determine if any impairment exists. The net realizable value of licensed copyrights of video content is determined by estimating the expected cash flows from advertising, less any direct costs, over the remaining useful lives of such licensed copyrights. The Company estimates advertising cash flows for each category of content separately. Estimates that impact advertising cash flows include anticipated levels of demand for the Company's advertising services and the expected selling prices of the Company's advertisements on the entertainment distribution platforms. Impairment charges in connection with the licensed copyrights of video content of nil, nil and RMB857 million were recorded in cost of revenue in the consolidated income statements for the years ended March 31, 2015, 2016 and 2017, respectively. The impairment charges for the licensed copyrights of video content were recorded within the Company's digital media and entertainment segment.

(y)   Goodwill

Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed from the acquired entity as a result of the Company's acquisitions of interests in its subsidiaries and consolidated VIEs. Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. In the qualitative assessment, the Company considers 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 each reporting unit is less than the carrying amount, the quantitative impairment test is performed.

In performing the two-step quantitative impairment test, the first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for the purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, allocation of assets, liabilities and goodwill to reporting units, and determination of the fair value of each reporting unit.

(z)   Impairment of long-lived assets other than goodwill and licensed copyrights of video content

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment of long-lived assets other than investment in equity investees and investment securities was recognized for the years ended March 31, 2015, 2016 and 2017.

(aa) Derivatives and hedging

In accordance with ASC 815 "Derivatives and Hedging," all contracts that meet the definition of a derivative should be recognized on the consolidated balance sheets as either assets or liabilities and recorded at fair value. Changes in the fair value of derivatives are either recognized periodically in the consolidated income statements or in other comprehensive income depending on the use of the derivatives and whether they qualify for hedge accounting and are so designated as cash flow hedges, fair value hedges or net investment hedges.

To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge (which includes the item and risk that is being hedged), the derivative that is being used and how hedge effectiveness is being assessed. A derivative has to be effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. The effectiveness of the hedging relationship is evaluated on a prospective and retrospective basis using qualitative and quantitative measures of correlation. Qualitative methods may include comparison of critical terms of the derivative to those of the hedged item. Quantitative methods include a comparison of the changes in the fair value or discounted cash flow of the hedging instrument to that of the hedged item. A hedging relationship is considered effective if the results of the hedging instrument are within a ratio of 80% to 125% of the results of the hedged item.

Interest rate swaps

Interest rate swaps designated as hedging instruments to hedge against the cash flows attributable to recognized assets or liabilities or forecasted payments may qualify as cash flow hedges. The Company entered into interest rate swap contracts to swap floating interest payments related to certain borrowings for fixed interest payments to hedge the interest rate risk associated with certain forecasted payments and obligations. The effective portion of changes in the fair value of interest rate swaps that are designated and qualify as cash flow hedges is recognized in accumulated other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in interest and investment income, net in the consolidated income statements. Amounts in accumulated other comprehensive income shall be reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings.

A loss of RMB43 million, nil and nil was recognized in interest and investment income, net in the consolidated income statements for the years ended March 31, 2015, 2016 and 2017, respectively. The loss recognized for the year ended March 31, 2015 was related to the ineffective portion of the changes in fair value of the interest rate swaps that were designated and qualified as cash flow hedges. Upon the termination of interest rate swap contracts, the hedging instruments were derecognized from the consolidated balance sheets and accumulated other comprehensive income, and a loss of RMB59 million, nil and nil was recognized in interest and investment income, net in the consolidated income statement for the years ended March 31, 2015, 2016 and 2017, respectively.

Forward exchange contracts

Forward exchange contracts designated as hedging instruments to hedge against the future changes in currency exposure of net investments in foreign operations may qualify as net investment hedges. During the years ended March 31, 2016 and 2017, the Company entered into forward exchange contracts to hedge the foreign currency risk associated with investments in net assets of certain subsidiaries with operations in the PRC of which the functional currency is RMB. The effective portion of the changes in fair value of the forward exchange contracts that are designated and qualify as net investment hedges is recognized in accumulated other comprehensive income to offset the cumulative translation adjustments related to those subsidiaries. The gain or loss relating to the ineffective portion, which is measured based on changes in forward exchange rates, is recognized immediately in other income, net in the consolidated income statements. Amounts accumulated are removed from accumulated other comprehensive income and recognized in the consolidated income statements upon disposal of those subsidiaries. Once the hedge becomes ineffective, hedge accounting is discontinued prospectively.

As of March 31, 2016 and 2017, forward exchange contracts with fair value of US$40 million (RMB257 million) and US$3 million (RMB20 million) were designated as hedging instruments and qualified as net investment hedges, respectively. During the years ended March 31, 2016 and 2017, the Company recognized a loss of US$46 million (RMB298 million) and US$5 million (RMB35 million) in other income, net in the consolidated income statements, respectively, which was the aggregate of (i) the changes in fair value of the forward exchange contracts not qualified for hedge accounting and (ii) the ineffective portion of the changes in fair value of the forward exchange contracts that are designated and qualify as net investment hedges.

Changes in the fair value of the derivatives not qualified for hedge accounting are reported in the consolidated income statements. The estimated fair value of the derivatives is determined based on relevant market information. These estimates are calculated with reference to the market rates using industry standard valuation techniques.

(ab) Bank borrowing and unsecured senior notes

Bank borrowings and unsecured senior notes are recognized initially at fair value, net of upfront fees, debt discounts or premiums and other incidental fees. Upfront fees, debt discount or premium and other incidental fees are recorded as a reduction of the proceeds received and the related accretion is recorded as interest expense in the consolidated income statements over the estimated term of the facilities using the effective interest method. In the year ended March 31, 2017, the Company adopted Accounting Standards Update ("ASU") 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which was issued by the Financial Accounting Standards Board ("FASB"). ASU 2015-03 requires debt issuance costs relating to a recognized debt liability to be presented in the consolidated balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Before the adoption of ASU 2015-03, debt issuance costs incurred which were directly attributable to debt issuance were capitalized and amortized over the estimated term of the facilities using the effective interest method.

As a result of the adoption of ASU 2015-03, the Company revised the presentation to report certain debt issuance costs recorded under prepayments, receivables and other assets as a deduction to unsecured senior notes on the consolidated balance sheets. The consolidated balance sheet as of March 31, 2016 was retrospectively adjusted, which resulted in reductions to current prepayments, receivables and other assets of RMB35 million, non-current prepayments, receivables and other assets of RMB170 million and non-current unsecured senior notes of RMB205 million. These reclassifications had no effect on the reported results of operations, net assets and the consolidated statements of cash flows.

(ac) Merchant deposits

The Company collects deposits representing an annual upfront service fee from merchants on Tmall and AliExpress before the beginning of each calendar year. These deposits are initially recorded as a liability by the Company. Such deposits are refundable to a merchant depending on the level of sales volume that is generated by that merchant on Tmall and AliExpress during the period. If the transaction volume target is not met at the end of each calendar year, the relevant deposits will become non-refundable and such portion of the deposits is recognized as revenue in the consolidated income statements.

(ad) Deferred revenue and customer advances

Deferred revenue and customer advances represent service fees received from customers that relate to services to be provided in the future. Deferred revenue, mainly relating to membership, storefront fees and cloud computing service revenue, is stated at the amount of service fees received less the amount previously recognized as revenue upon the provision of the respective services over the terms of the respective service contracts.

(ae) Commitments and contingencies

In the normal course of business, the Company is subject to contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters. Liabilities for such contingencies are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with its legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of the reasonably possible loss, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

(af) Treasury shares

The Company accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury shares account on the consolidated balance sheets. At retirement, the ordinary shares account is charged only for the aggregate par value of the shares. The excess of the acquisition cost of treasury shares over the aggregate par value is allocated between additional paid-in capital (up to the amount credited to the additional paid-in capital upon original issuance of the shares) and retained earnings. The treasury shares account includes 24,393,569 and 20,789,596 ordinary shares issued at par to wholly-owned subsidiaries of the Company for the purpose of certain equity investment plans for management as of March 31, 2016 and 2017, respectively.

The Company applies the treasury stock method for the accounting of the reciprocal relationship in which an equity method investee holds ordinary shares of the Company (Note 4(w)). The treasury shares account includes nil and 5,262,306 ordinary shares representing the Company's share of an equity method investee's investment in the Company as of March 31, 2016 and 2017, respectively.

(ag) Subscription receivables

The Company made available loans to certain employees of the Company and its related companies in order to finance their exercise of share options and subscription for ordinary shares of the Company (Note 12). The participants of all such loans have pledged the ownership of their ordinary shares or restricted shares as security for these loans. The Company also had arrangements with its related companies such that the Company will receive cash reimbursements from its related companies upon the vesting of options and RSUs underlying the Company's ordinary shares granted to their employees. For accounting purposes, loans and reimbursements outstanding with respect to the exercise of vested options and share subscription are recorded as subscription receivables in equity. Further, unvested options that were exercised are recorded as other current liabilities and they are transferred to equity upon vesting.

(ah) Statutory reserves

In accordance with the relevant regulations and their articles of association, subsidiaries of the Company incorporated in the PRC are required to allocate at least 10% of their after-tax profit determined based on the PRC accounting standards and regulations to the general reserve until such reserve has reached 50% of the relevant subsidiary's registered capital. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the respective board of directors of the subsidiaries. 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. During the years ended March 31, 2015, 2016 and 2017, appropriations to the general reserve amounted to RMB267 million, RMB529 million and RMB836 million, respectively. No appropriations to the enterprise expansion fund and staff welfare and bonus fund have been made by the Company.

(ai)  Reclassification of comparative figures

Other than the reclassification of comparative figures relating to the adoption of ASU 2015-03 as discussed in Note 2(ab), the Company has reclassified certain comparative figures, including revenue and goodwill information within Notes 5 and 16, to conform to the way that the Company's CODM internally manages and monitors segment performance during the year ended March 31, 2017.

 

 

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Recent accounting pronouncements
12 Months Ended
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Recent accounting pronouncements  
Recent accounting pronouncements

 

3.     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 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 (collectively, 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 the Company for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019, with early application permitted only for the annual reporting period ending March 31, 2018 and interim reporting periods during the year ending March 31, 2018. 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"). The Company is currently evaluating whether it will apply the full retrospective method or the modified retrospective method. The Company is also evaluating the existing revenue recognition policies and currently the Company believes that the identification of performance obligations may have an impact on the timing and measurement of certain fees paid by merchants under ASC 606.

In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as non-current on the consolidated balance sheet. The new guidance is effective for the Company for the year ending March 31, 2018 and interim reporting periods during the year ending March 31, 2018. Early adoption is permitted. The new guidance may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company is evaluating the effects, if any, of the adoption of this revised guidance on the Company's financial position, results of operations or cash flows. At this time, the Company does not expect this accounting standard update to have a material impact on the consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. With respect to the Company's 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, equity investments are required to be measured at fair value with changes in fair value recognized in net income, except for investments that do not have readily determinable fair values. The new guidance also simplifies the impairment assessment and enhances the disclosure requirements of equity investments. The new guidance is effective for the Company for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted only for certain provisions. The Company is evaluating the effects, if any, of the adoption of this revised guidance on the Company's financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 creates a new topic in ASC 842 "Leases" to replace the current topic in ASC 840 "Leases." ASU 2016-02 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 the Company for the year ending March 31, 2020 and interim reporting periods during the year ending March 31, 2020. Early adoption is permitted. The Company is evaluating the effects, if any, of the adoption of this revised guidance on the Company's financial position, results of operations or cash flows.

In March 2016, the FASB issued ASU 2016-07, "Investments — Equity Method and Joint Ventures (Topic 323), Simplifying the Transition to the Equity Method of Accounting," to simplify the accounting for equity method investments, which eliminates the requirement in ASC 323 "Investments — Equity method and Joint Ventures" that an entity retroactively adopts the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The amendments require that the equity method investor adds the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopts the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new guidance is effective for the Company for the year ending March 31, 2018 and interim reporting periods during the year ending March 31, 2018. The Company early adopted this new guidance prospectively in the year ended March 31, 2017.

In March 2016, the FASB issued ASU 2016-09, "Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," to simplify the accounting for employee share-based payment transactions, including the income tax consequences, classification of excess tax benefits on the statement of cash flows, introduction of accounting policy election on forfeitures, and the change of the threshold of share withholding by the employer for settlement of employees' tax without causing the award to be classified as a liability. The new guidance is effective for the Company for the year ending March 31, 2018 and interim reporting periods during the year ending March 31, 2018. Early adoption is permitted. The Company is evaluating the effects, if any, of the adoption of this revised guidance on the Company's financial position, results of operations or cash flows.

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. The new guidance also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. The new guidance is effective for the Company for the year ending March 31, 2021 and interim reporting periods during the year ending March 31, 2021. Early adoption is permitted for the Company for the year ending March 31, 2020 and interim reporting periods during the year ending March 31, 2020. The Company is evaluating the effects, if any, of the adoption of this guidance on the Company's financial position, results of operations and cash flows.

In June 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance is effective for the Company for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted. The guidance requires application using a retrospective transition method. The Company is evaluating the effects, if any, of the adoption of this guidance on the Company's consolidated statements of cash flows.

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 the Company for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted. 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. The Company is evaluating the effects, if any, of the adoption of this guidance on the Company's financial position, results of operations and cash flows.

In October 2016, the FASB issued ASU 2016-17, "Consolidation (Topic 810): Interests held through Related Parties That Are Under Common Control" to amend the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The new guidance is effective for the Company for the year ending March 31, 2018 and interim reporting periods during the year ending March 31, 2018. Early adoption is permitted. When the new guidance is adopted, it is required to be applied retrospectively for the Company for the year ended March 31, 2017 and interim reporting periods during the year ended March 31, 2017. The Company is evaluating the effects, if any, of the adoption of this guidance on the Company's 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 the Company for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted. The guidance requires application using a retrospective transition method. The Company is evaluating the effects, if any, of the adoption of this guidance on the Company's consolidated statements of cash flows.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is effective prospectively for the Company for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted for transactions for which the transaction date occurs before the issuance date or effective date of this new guidance, only when the transaction has not been reported in the financial statements that have been issued or made available for issuance. The Company is evaluating the effects, if any, of the adoption of this guidance on the Company's financial position, results of operations and 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 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 the Company 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. The Company is evaluating the effects, if any, of the adoption of this guidance on the Company's 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. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, 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 the Company for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted. The Company is evaluating the effects, if any, of the adoption of this guidance on the Company's financial position, results of operations and cash flows.

 

v3.7.0.1
Significant equity transactions, restructuring transactions, mergers and acquisitions and equity investments
12 Months Ended
Mar. 31, 2017
Significant equity transactions, restructuring transactions, mergers and acquisitions and equity investments  
Significant equity transactions, restructuring transactions, mergers and acquisitions and equity investments

 

4.     Significant equity transactions, restructuring transactions, mergers and acquisitions and equity investments

Equity transactions

(a)   Initial public offering

On September 24, 2014, the Company completed its initial public offering on the New York Stock Exchange under the symbol of "BABA." The Company offered 123,076,931 American Depositary Shares, or ADS, and other selling shareholders, including Yahoo, among others, offered an aggregate of 197,029,169 ADSs. Each ADS represents one ordinary share and was sold to the public at US$68.00 per ADS. On the same date of the initial public offering, the underwriters exercised in full the option to purchase an additional 26,143,903 ADSs and 21,871,997 ADSs at US$68.00 per ADS from the Company and certain other selling shareholders, respectively. Net proceeds raised by the Company from the initial public offering amounted to US$10.0 billion after deducting underwriting discounts and commissions and other offering expenses.

Restructuring transactions

(b)   Restructuring of Payment Services

Restructuring of Payment Services in 2011

Pursuant to the regulations issued by the People's Bank of China (the "PBOC"), non-bank payment companies were required to obtain a license in order to operate a payment business in the PRC. These regulations provided specific guidelines for license applications only for domestic PRC-owned entities. These regulations stipulated that, in order for any foreign-invested payment company to obtain a license, the scope of business, the qualifications of any foreign investor and any level of foreign ownership would be subject to future regulations to be issued, which in addition would require approval by the PRC State Council. Further, the regulations required that any payment company that failed to obtain a license must cease operations by September 1, 2011. Although Alipay was prepared to submit its license application in early 2011, at that time the PBOC had not issued any guidelines applicable to license applications for foreign-invested payment companies. In light of the uncertainties relating to the license qualification and application process for a foreign-invested payment company, the Company's management determined that it was necessary to restructure Alipay as a company wholly-owned by PRC nationals in order to avail Alipay of the specific licensing guidelines applicable only to domestic PRC-owned entities. Accordingly, the Company divested all of its interest in and control over Alipay, which resulted in deconsolidation of Alipay from the consolidated financial statements.

As part of the restructuring, the loan extended for the funding of paid-in capital of Ant Small and Micro Financial Services Group Co., Ltd. (formerly known as Zhejiang Ant Small and Micro Financial Services Group Co., Ltd.) ("Ant Financial Services") that held the equity interests of Alipay was repaid by the management members in full to the Company. Certain agreements entered into between the Company and Ant Financial Services, such as the loan agreement, the pledge agreement for the same equity interests held by certain management members of the Company, the option agreement to acquire the equity interests in Ant Financial Services when permitted by the PRC laws, among others (the "Agreements"), which allowed the Company to control Ant Financial Services, were also terminated.

Following the restructuring during the year ended March 31, 2011, the Company has not consolidated or equity accounted for the entities engaging in Payment Services because the Company has no direct and indirect investment in and does not control or have significant influence over Ant Financial Services, Alipay and their subsidiaries.

During the year ended March 31, 2012, the Company entered into the following commercial arrangements, among others, with APN Ltd., a company owned by two directors of the Company, Yahoo, SoftBank, Alipay, Ant Financial Services, and Ant Financial Services' equity holders, setting out the mechanism for the future collaboration among the relevant parties relating to the Payment Services:

(i)          

Framework Agreement

           

Pursuant to the terms of the Framework Agreement, the Company will receive from Ant Financial Services an amount equal to 37.5% of the equity value of Alipay less US$500 million, being the face value of the Promissory Note payable, upon a Liquidity Event as defined in the agreement (the "Liquidity Payment"). Under no circumstances will the amount of the Liquidity Payment plus US$500 million be less than US$2.0 billion or more than US$6.0 billion, subject to certain increases and additional payments if a Liquidity Event does not occur by the sixth anniversary of the agreement. If a Liquidity Event does not occur by the tenth anniversary of this agreement, the Company will have a right to demand Ant Financial Services and Alipay to effect a Liquidity Event as soon as practicable, provided that the equity value or enterprise value of Alipay at such time exceeds US$1.0 billion. If the Liquidity Event is demanded by the Company, the minimum amount of US$2.0 billion described above will not apply to the Liquidity Payment, unless the Liquidity Event is effected by means of a transfer of more than 37.5% of the securities of Alipay. Upon payment of the Liquidity Payment, certain assets and intellectual property related to the operations of Payment Services, which were retained by the Company (the "Retained Business Assets"), will be transferred to Alipay.

           

"Liquidity Event" means the earliest to occur of: (a) a qualified initial public offering of Alipay; (b) a transfer of 37.5% or more of the securities of Alipay; or (c) a sale of all or substantially all of the assets of Alipay.

           

In addition, the Company received a non-interest bearing promissory note (the "Promissory Note") in the principal amount of US$500 million with a seven-year maturity from APN Ltd. The Promissory Note was secured by a pledge of 50 million ordinary shares of the Company, which were contributed by two directors of the Company to APN Ltd. The Promissory Note formed part of the consideration for the transfer of the Retained Business Assets upon the Liquidity Event and the Promissory Note was payable upon the earlier of the occurrence of the Liquidity Event or December 14, 2018. The Framework Agreement was subsequently amended and pursuant to the terms of the amendment, the Promissory Note was cancelled and the amount of the Liquidity Payment which the Company would be entitled to receive in the event of a Liquidity Event was increased by US$500 million, the principal amount of the cancelled Promissory Note.

(ii)          

Intellectual Property License and Software Technology Services Agreement

           

Under the terms of this agreement, the Company licenses certain intellectual property and provides certain software technology services to Alipay in exchange for a royalty fee and software technology services fee in an amount equal to the costs incurred by the Company in providing the software technology services plus 49.9% of the consolidated pre-tax income of Alipay and its subsidiaries, subject to downward adjustments upon certain dilutive equity issuances by Ant Financial Services or Alipay, but in no case below 30%. If Alipay incurs a pre-tax loss, the fee that the Company would charge Alipay would equal the costs incurred by the Company in providing the software technology services. This agreement will terminate at the earlier of (a) the payment of the Liquidity Payment, and (b) such time when termination may be required by applicable regulatory authorities in connection with a qualified initial public offering by Alipay.

(iii)          

Commercial Agreement

           

Under the terms of this agreement, the Company receives payment processing services from Alipay, the fee rate for which is subject to review and approval by the Company's independent committee which is comprised of the director nominated by SoftBank and the independent directors of the Company, on an annual basis (the "Payment Processing Fee"). This agreement has an initial term of fifty years and shall be renewable thereafter. If the commercial agreement is required by applicable regulatory authorities to be modified in certain circumstances, a one-time payment may be payable to the Company by Ant Financial Services as compensation for the impact of such adjustment. Expenses in connection with the Payment Processing Fee of RMB3,853 million, RMB4,898 million and RMB5,487 million were recorded in cost of revenue in the consolidated income statements for the years ended March 31, 2015, 2016 and 2017, respectively (Note 22).

           

All closing conditions attached to the Framework Agreement and related supplemental arrangements were fulfilled in December 2011.

 

Restructuring of Payment Services in 2014

The Framework Agreement and related supplemental arrangements were terminated in August 2014 upon the restructuring of the commercial agreements with Payment Services when the Company entered into a share and asset purchase agreement (the "2014 SAPA") with Ant Financial Services, the other parties to the Framework Agreement entered into in 2011, Hangzhou Junhan Equity Investment Partnership ("Junhan") and Hangzhou Junao Equity Investment Partnership, a PRC limited partnership in which the interests are held by certain members of the Alibaba Partnership.

Pursuant to the 2014 SAPA, the Company sold the micro loan business and related services (the "Transferred Business") to Ant Financial Services for aggregate cash consideration of RMB3,219 million. In addition, the Company entered into software system use and service agreements with Ant Financial Services relating to the know how and related intellectual property that the Company has agreed to sell together with the micro loan business and related services (Note 22). In calendar years 2015 to 2017, the Company received or will receive an annual fee equal to 2.5% of the average daily book balance of the micro loans managed by Ant Financial Services. In calendar years 2018 to 2021, the Company will receive an annual fee equal to the amount paid for the calendar year 2017 (together with the fees received in calendar years 2015 to 2017, the "SME Annual Fee"). The SME Annual Fee of RMB90 million, RMB708 million and RMB847 million were recorded in revenue in the consolidated financial statements for the years ended March 31, 2015, 2016 and 2017, respectively.

In connection with the 2014 SAPA, the Company also entered into an amended intellectual property license agreement with Alipay ("amended Alipay IPLA"), pursuant to which the Company licenses certain intellectual property and provides certain software technology services to Alipay and the Transferred Business. Under the amended Alipay IPLA, the Company will receive royalty streams and a service fee (collectively, the "Profit Share Payments") which will be paid at least annually, amounting to the sum of an expense reimbursement plus 37.5% of the consolidated pre-tax income of Ant Financial Services, subject to certain adjustments. In addition, if the Company acquires any equity interest in Ant Financial Services, the Company will transfer an agreed portion of the underlying intellectual property to Ant Financial Services at the time of such equity issuance. At the same time, the Profit Share Payments will also be reduced in proportion to such equity issuances made to the Company.

Income in connection with the royalty fee and software technology services fee under the Intellectual Property License and Software Technology Services Agreement and the Profit Share Payments, net of costs incurred by the Company, of RMB1,667 million, RMB1,122 million and RMB2,086 million were recorded in other income, net in the consolidated income statements for the years ended March 31, 2015, 2016 and 2017, respectively (Note 22).

Pursuant to the terms of the 2014 SAPA, in the event of an initial public offering of Ant Financial Services or Alipay at an implied equity value exceeding US$25.0 billion which results in gross proceeds of at least US$2.0 billion (a "Qualified IPO"), if the Company's total ownership of equity interests in Ant Financial Services has not reached 33%, the Company would be entitled at its election to receive a one-time payment equal to 37.5% of the equity value of Ant Financial Services as determined immediately prior to such Qualified IPO. There is no cap on the maximum value of such liquidity event payment. If the Company acquires equity interests in Ant Financial Services in an aggregate amount less than 33%, the percentage of Ant Financial Services' equity value used to calculate such liquidity event payment will be reduced proportionately.

In lieu of receiving such liquidity event payment, the Company may elect to continue to receive the Profit Share Payments in perpetuity, subject to the receipt of regulatory approvals. In connection with a Qualified IPO and if the Company so elects, Ant Financial Services must use its commercially reasonable efforts to obtain the required approvals for continued payments under the amended Alipay IPLA. If such approvals are not obtained, Ant Financial Services will pay the liquidity event payment as described above to the Company.

The 2014 SAPA provides for future potential equity issuances to the Company by Ant Financial Services. In the event that Ant Financial Services applies for and receives certain PRC regulatory approvals in the future, Ant Financial Services will issue and the Company will purchase up to 33% of newly issued equity interests in Ant Financial Services, or such lesser equity interest as may be permitted by the regulatory approvals. If the liquidity event payment described above has not become payable upon a Qualified IPO of Ant Financial Services, the Company's right to acquire equity interests up to the full 33% equity interest will continue after such Qualified IPO. However, the maximum equity interest that the Company is entitled to acquire will be reduced in proportion to any dilutive equity issuances by Ant Financial Services in and following such Qualified IPO. If the Company acquires an equity interest in Ant Financial Services pursuant to this arrangement which is below 33%, the liquidity event payment amount and the profit sharing arrangement under the amended Alipay IPLA will be proportionately reduced based on the amount of equity interests acquired by the Company.

Concurrently with the 2014 SAPA, the Company entered into other ancillary agreements, including a data sharing agreement, an SME loan cooperation agreement, a trademark agreement, and an amended and restated shared services agreement. The Company also entered into a binding term sheet in respect of a technology services agreement, pursuant to which the Company agreed to provide certain cloud computing, database service and storage, large-scale computing services and certain other services to Ant Financial Services on a cost-plus basis. In addition, the existing Alipay Commercial Agreement will continue as currently in effect.

The terms of the 2014 SAPA, the amended Alipay IPLA and other ancillary agreements took effect immediately upon their execution in August 2014. The transfer of the Transferred Business was completed in February 2015, and a gain on disposal of RMB306 million was recorded in interest and investment income, net in the consolidated income statement for the year ended March 31, 2015. Certain assets and liabilities, such as restricted cash and escrow receivables of RMB3,495 million, loan receivables, net of RMB23,363 million, secured borrowings of RMB15,417 million and escrow money payable of RMB3,495 million were derecognized from the consolidated balance sheet of the Company upon the completion of the transfer of the Transferred Business.

For accounting purposes, the fair value of the restructured arrangement exceeded the fair value of the pre-existing arrangement with Ant Financial Services by RMB1.3 billion. As Ant Financial Services is controlled by a director and major shareholder of the Company, the excess value provided to the Company in this related party transaction is accounted for as an equity contribution by the shareholder as restructuring reserve in the statement of changes in shareholders' equity. Given the nature of this transaction, the corresponding asset representing the excess value receivable by the Company is accounted for as a deduction from equity and amortized as an expense in the consolidated income statements over the expected term of the restructured arrangement which is estimated to be 5 years. The amortization of the excess value of RMB166 million, RMB264 million and RMB264 million were recorded in the other income, net in the consolidated income statements for the years ended March 31, 2015, 2016 and 2017, respectively. Furthermore, the Company accounts for the Profit Share Payments and the SME Annual Fee in the periods when the services are provided, where such payments are expected to approximate the estimated fair values of the services provided.

Mergers and acquisitions

(c)   Acquisition of Pony Media Holdings Inc. ("Damai")

In March 2017, the Company completed an acquisition of all of the issued and outstanding shares of Damai that the Company did not already own for a total cash consideration of US$393 million (RMB2,711 million). Yunfeng, which is comprised of certain investment funds of which the executive chairman of the Company has equity interests in the general partners of such funds, was one of the shareholders of Damai. Prior to this transaction, Damai was an equity investee in which the Company held an approximately 32% equity interest on a fully diluted basis. The investment was accounted for under the cost method. Damai is a leading online ticketing platform for live events such as concerts and theater shows in the PRC.

(c)   Acquisition of Pony Media Holdings Inc. ("Damai") (Continued)

The allocation of the purchase price as of the date of acquisition is summarized as follows:

                                                                                                                                                                                    

 

 

Amounts

 

 

 

(in millions of RMB)

 

Net assets acquired

 

 

100

 

Amortizable intangible assets (i)

 

 

 

 

Trade names, trademarks and domain names

 

 

684

 

Non-compete agreements

 

 

271

 

Developed technology and patents

 

 

267

 

Goodwill

 

 

2,693

 

Deferred tax assets

 

 

16

 

Deferred tax liabilities

 

 

(202

)

​  

​  

Total

 

 

3,829

 

​  

​  

​  

​  

                                                                                                                                                                                    

 

 

Amounts

 

 

 

(in millions of RMB)

 

Total purchase price comprised of:

 

 

 

 

- cash consideration

 

 

2,711

 

- fair value of previously held equity interests

 

 

1,118

 

​  

​  

Total

 

 

3,829

 

​  

​  

​  

​  

 

 

                                                                                                                                                                                    

(i)          

Acquired amortizable intangible assets have estimated amortization periods not exceeding ten years and a weighted-average amortization period of 7.4 years.

A gain of RMB201 million was recognized in relation to the revaluation of previously held equity interest relating to the step acquisition of Damai in interest and investment income, net in the consolidated income statement for the year ended March 31, 2017. The fair value of the previously held equity interest was determined using an income approach. As Damai is a private company, the fair value of the previously held equity interest is estimated based on significant inputs that market participants would consider, which mainly include revenue growth rate, operating margin, discount rate and other factors that may affect such fair value estimation.

The rationale for this transaction is to enable the Company to expand its user reach and engagement. The Company believes Damai will form a strategic part of the value chain in the Company's digital media and entertainment business. Goodwill arising from this acquisition was attributable to the synergies expected from the combined operations of Damai and the Company, the assembled workforce and their knowledge and experience in the entertainment industry in the PRC.

(d)  Acquisition of AGTech Holdings Limited ("AGTech")

In August 2016, an investment vehicle which is 60% owned by the Company and 40% owned by Ant Financial Services, completed an acquisition of newly issued ordinary shares of AGTech for a cash consideration of Hong Kong Dollar ("HK$") 1,675 million (RMB1,436 million), representing an approximately 49% equity interest in AGTech. AGTech is an integrated lottery technology and services company in the PRC that is listed on the Hong Kong Growth Enterprise Market. In addition, the investment vehicle completed the subscription for convertible bonds, which are convertible into ordinary shares of AGTech, for a purchase price of HK$713 million (RMB611 million). A portion of the convertible bonds with a total principal amount of HK$205 million (RMB176 million) were converted into ordinary shares of AGTech upon closing of the acquisition. Consequently, the investment vehicle's equity interest in AGTech increased to approximately 53%. The Company obtained control over AGTech through its control over the investment vehicle and AGTech became a consolidated subsidiary of the Company.

The allocation of the total purchase price of HK$1,880 million (RMB1,612 million), representing the cost of acquisition for the newly issued ordinary shares and the partial conversion of the convertible bonds by the investment vehicle, as of the date of acquisition is summarized as follows:

                                                                                                                                                                                    

 

 

Amounts

 

 

 

(in millions of RMB)

 

Net assets acquired (i)

 

 

1,638

 

Amortizable intangible assets (ii)

 

 

 

 

Developed technology and patents

 

 

414

 

Trade names, trademarks and domain names

 

 

44

 

Non-compete agreements

 

 

38

 

Others

 

 

33

 

Goodwill

 

 

7,782

 

Deferred tax assets

 

 

4

 

Deferred tax liabilities

 

 

(86

)

Noncontrolling interests (iii)

 

 

(8,255

)

​  

​  

Total

 

 

1,612

 

​  

​  

​  

​  

 

 

                                                                                                                                                                                    

(i)          

Net assets include the cash consideration of RMB1,612 million.

(ii)          

Acquired amortizable intangible assets have estimated amortization periods and a weighted-average amortization period of 3.0 years.

(iii)          

Fair value of the noncontrolling interests is estimated based on the market price of the ordinary shares of AGTech as of the acquisition date.

The rationale for this transaction is to enable the Company to expand its products and services. The Company believes that AGTech will serve as its vehicle for participating in the online lottery business in the PRC. Goodwill arising from this acquisition was attributable to the synergies expected from the combined operations of AGTech and the Company, the assembled workforce and their knowledge and experience surrounding lottery related businesses in the PRC.

In March 2017, an additional portion of the convertible bonds with a total principal amount of HK$175 million (RMB155 million) was converted into ordinary shares of AGTech. Accordingly, the investment vehicle's equity interest in AGTech increased to approximately 55%. The conversion was accounted for as a reduction of noncontrolling interest.

(e)   Acquisition of South China Morning Post and other media businesses ("SCMP")

In April 2016, the Company acquired the business of South China Morning Post, the premier English newspaper in Hong Kong. Apart from the flagship South China Morning Post, the Company also acquired the recruitment, outdoor media, events and conferences, education and digital media businesses in the same transaction. The total cash consideration of HK$2,134 million (RMB1,780 million) was paid upon the closing of the transaction. These acquired businesses became wholly-owned by the Company after the completion of the transaction.

The allocation of the total purchase price as of the date of acquisition is summarized as follows:

                                                                                                                                                                                    

 

 

Amounts

 

 

 

(in millions of RMB)

 

Net assets acquired

 

 

800

 

Amortizable intangible assets (i)

 

 

 

 

Trade names, trademarks and domain names

 

 

378

 

User base and customer relationships

 

 

166

 

Licenses and copyrights

 

 

5

 

Others

 

 

10

 

Goodwill

 

 

529

 

Deferred tax assets

 

 

1

 

Deferred tax liabilities

 

 

(109

)

​  

​  

Total

 

 

1,780

 

​  

​  

​  

​  

 

 

                                                                                                                                                                                    

(i)          

Acquired amortizable intangible assets have estimated amortization periods and a weighted-average amortization period of 3.0 years.

The rationale for this transaction is to enable the Company to expand its products and services. By combining the heritage and editorial excellence of SCMP with the Company's digital expertise, the Company intended to provide comprehensive and insightful news and analysis of the big stories in Hong Kong and the PRC so as to expand the readership globally through digital distribution and allow easier access to content. Goodwill arising from this acquisition was attributable to the synergies expected from the combined operations of SCMP and the Company, the assembled workforce and their knowledge and experience in the provision and distribution of content to reach global audience.

(f)   Acquisition of Youku Tudou Inc. ("Youku Tudou")

In May 2014, the Company completed an acquisition of ordinary shares representing an effective equity interest of 16.5% on a fully-diluted basis in Youku Tudou. Youku Tudou, a company that was previously listed on the New York Stock Exchange, is a leading multi-screen entertainment and media company in the PRC. The cash consideration of US$1,090 million (RMB6,723 million) was paid upon the closing of the transaction. The Company made this investment on the same terms together with Yunfeng. The Company appointed one director to the board of Youku Tudou and the investment in Youku Tudou was accounted for under the equity method.

In April 2016, the Company completed an acquisition of all of the issued and outstanding shares of Youku Tudou that the Company or Yunfeng did not already own, at a purchase price of US$27.60 per ADS. Following the completion of the transaction, the Company holds an approximately 98% equity interest in Youku Tudou. As a result, Youku Tudou became a consolidated subsidiary of the Company, with Yunfeng holding an approximately 2% noncontrolling interest. The listing of the ADS of Youku Tudou on the New York Stock Exchange was withdrawn upon the closing of the transaction.

The total cash consideration of US$4,443 million (RMB28,724 million) was paid upon the closing of the transaction. The allocation of the purchase price as of the date of acquisition is summarized as follows:

                                                                                                                                                                                    

 

 

Amounts

 

 

 

(in millions of RMB)

 

Net assets acquired (i)

 

 

5,836

 

Amortizable intangible assets (ii)

 

 

 

 

Trade names, trademarks and domain names

 

 

4,047

 

User base and customer relationships

 

 

284

 

Developed technology and patents

 

 

143

 

Others

 

 

262

 

Goodwill

 

 

26,395

 

Deferred tax assets

 

 

73

 

Deferred tax liabilities

 

 

(1,167

)

Noncontrolling interests (iii)

 

 

(773

)

​  

​  

Total

 

 

35,100

 

​  

​  

​  

​  

                                                                                                                                                                                    

 

 

Amounts

 

 

 

(in millions of RMB)

 

Total purchase price comprised of:

 

 

 

 

- cash consideration

 

 

28,724

 

- fair value of previously held equity interests

 

 

6,376

 

​  

​  

Total

 

 

35,100

 

​  

​  

​  

​  

 

 

                                                                                                                                                                                    

(i)          

Net assets acquired primarily include cash and cash equivalents and short-term interest-bearing deposits with total balance of RMB5,857 million and licensed copyrights of video content of RMB703 million as of the date of acquisition.

(ii)          

Acquired amortizable intangible assets have estimated amortization periods not exceeding 20 years and a weighted-average amortization period of 17.4 years.

(iii)          

Fair value of the noncontrolling interests is estimated with reference to the purchase price of US$27.60 per ADS in the step acquisition.

A gain of RMB518 million in relation to the revaluation of the previously held equity interest was recorded in interest and investment income, net in the consolidated income statement for the year ended March 31, 2017. The fair value of the previously held equity interest was estimated with reference to the purchase price of US$27.60 per ADS in the step acquisition.

The rationale for this transaction is to enable the Company to expand its products and services. Youku Tudou is a core part of the Company's strategy to offer digital entertainment to consumers in the Company's ecosystem, thereby strengthening user engagement and loyalty as well as enabling a new marketing channel for the merchants and brands in the Company's ecosystem. Further, Youku Tudou creates additional revenue sources for the Company from advertising and membership subscriptions. Goodwill arising from this acquisition was attributable to the synergies expected from the combined operations of Youku Tudou and the Company, the assembled workforce and their knowledge and experience in the digital entertainment business.

Subsequent to the completion of the transaction and as a resolution to negotiations with certain former management members and shareholders of Youku Tudou with respect to an option to purchase up to 15% of its equity, the Company issued 1.3 million ordinary shares and 3.4 million restricted share units of the Company to certain former management members and shareholders in April 2017. The 3.4 million restricted share units contain vesting conditions pursuant to a non-compete agreement which was entered into by the Company and a former management member of Youku Tudou in April 2017.

(g)   Acquisition of Lazada Group S.A. ("Lazada")

In April 2016, the Company completed an acquisition of approximately 54% equity interest in Lazada for a total cash consideration of US$1,020 million (RMB6,607 million). Lazada operates e-commerce platforms in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, with local language websites and mobile apps in each of the six markets. Lazada became a consolidated subsidiary of the Company after the completion of the transaction. In connection with the transaction, the Company entered into a put and call arrangement with certain Lazada shareholders, giving the Company the right to purchase, and the shareholders the right to sell collectively, their remaining equity interest in Lazada at the then fair market value during a six-month period after the first anniversary of the closing of the transaction.

The total cash consideration of US$1,020 million (RMB6,607 million) was paid upon the closing of the transaction. The allocation of the purchase price as of the date of acquisition is summarized as follows:

                                                                                                                                                                                    

 

 

Amounts

 

 

 

(in millions of RMB)

 

Net assets acquired

 

 

2,874

 

Amortizable intangible assets (i)

 

 

 

 

User base and customer relationships

 

 

2,014

 

Non-compete agreements

 

 

959

 

Trade names, trademarks and domain names

 

 

292

 

Developed technology and patents

 

 

79

 

Goodwill

 

 

5,216

 

Deferred tax assets

 

 

616

 

Deferred tax liabilities

 

 

(1,027

)

Noncontrolling interests (ii)

 

 

(4,416

)

​  

​  

Total

 

 

6,607

 

​  

​  

​  

​  

 

 

                                                                                                                                                                                    

(i)          

Acquired amortizable intangible assets have estimated amortization periods not exceeding three years and a weighted-average amortization period of 2.5 years.

(ii)          

Fair value of the noncontrolling interests is estimated based on the purchase price per issued share of Lazada as of the acquisition date. The noncontrolling interests is classified as mezzanine equity due to certain put and call arrangements with other Lazada shareholders.

 

The rationale for this transaction is to enable the Company to expand into new markets internationally. Lazada offers third-party brands and merchants a marketplace solution with simple and direct access to consumers in the six countries in Southeast Asia through a single retail channel. It also sells products owned by its retail operations and has developed its own logistics infrastructure with warehouses and a last-mile delivery fleet to offer quick and reliable delivery to its customers. The Company believes that Lazada will be the vehicle for expansion into the Southeast Asia consumer market, including potential cr