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JD Digits reorganization | 12 Months Ended
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Dec. 31, 2018
JD Digits reorganization |
JD Digits reorganization | 6.JD Digits reorganization In the first half of 2017, the Group entered into a series of definitive agreements relating to the reorganization of JD Digits. Pursuant to the definitive agreements, the Group disposed of all its equity stake of 68.6% in JD Digits so that it holds neither legal ownership nor effective control of JD Digits, received RMB14.3 billion in cash and is entitled to a royalty and software technical services fee of 40% of the future pre-tax profit of JD Digits when JD Digits has a positive pre-tax income on a cumulative basis. In addition, the Group would be able to convert its profit sharing right with respect to JD Digits into 40% of JD Digits’s equity interest, subject to applicable regulatory approvals. Mr. Richard Qiangdong Liu, the Group’s Chairman of the Board and Chief Executive Officer, also participated in the reorganization of JD Digits, and purchased an equity stake of JD Digits at the same price as third-party investors and pursuant to the same set of definitive agreements. Mr. Richard Qiangdong Liu also obtained majority voting rights in JD Digits through his equity stake and act-in-concert arrangement with other investors and ESOP participants. The transaction was completed by June 30, 2017 and all of the cash consideration was received in 2017. Because the Group is entitled to a royalty and software technical services fee of 40% of the future pre-tax profit of JD Digits when JD Digits has a positive pre-tax income on a cumulative basis, and therefore the Group is considered to have a variable interest in JD Digits even though the Group has no equity interest in JD Digits. As the Group shares a large portion of JD Digits’s expected residual returns, it limits the right of holders of the equity investment at risk to receive JD Digits’s expected residual returns, hence, JD Digits is a VIE of the Group. Mr. Richard Qiangdong Liu holds a minority equity stake in JD Digits, and obtains majority voting rights in JD Digits through his equity stake and voting arrangements, possesses the power to direct the activities of JD Digits that would most significantly impact its economic performance, and also exposes to benefits and losses of JD Digits. As a result, JD Digits is an unconsolidated VIE of the Group as the Group is not considered the primary beneficiary of JD Digits. Hence upon the completion of the transaction on June 30, 2017, JD Digits was deconsolidated from the Group as a result of the reorganization. The Group and JD Digits are both controlled by Mr. Richard Qiangdong Liu before and after the transaction, so the disposal of JD Digits was achieved through an under the common control transaction, accordingly, the gain of RMB14,193,481 from the disposal of JD Digits was recorded in equity account as additional paid-in capital. The gain represented the excess of cash consideration, net of taxes, over the net carrying value of the disposed equity stake in JD Digits. The disposal of JD Digits has met the discontinued operation criteria. However, given the facts that the disposal is achieved through an under common control transaction, and therefore the held-for-sale and discontinued operation presentation can only be adopted upon the disposal date, which is June 30, 2017. The Group has classified the historical financial results of JD Digits as discontinued operations in the Group’s Consolidated Statements of Operations and Comprehensive Income/(Loss) for all periods presented prior to July 1, 2017. Additionally, the related assets and liabilities associated with discontinued operations in the prior year Consolidated Balance Sheets were classified as assets/liabilities held for sale to provide the comparable financial information. The following tables set forth the assets, liabilities, redeemable non-controlling interests, results of operations and cash flows of discontinued operations, which were included in the Group’s consolidated financial statements:
|  | As of December 31, 2016
|  | RMB
ASSETS |  |
Current assets |  |
Cash and cash equivalents |  | 4,204,659
Restricted cash |  | 2,098,315
Accounts receivable, net |  | 1,323,401
Advance to suppliers |  | 1,166,619
Loan receivables, net |  | 8,681,592
Other investments (*) |  | 10,766,920
Other current assets |  | 1,577,213
Elimination adjustments (**) |  | (7,664,225)
Total current assets held for sale |  | 22,154,494
Non-current assets |  |
Other investments (*) |  | 6,997,425
Other non-current assets |  | 2,231,186
Elimination adjustments (**) |  | (1,896,200)
Total non-current assets held for sale |  | 7,332,411
Total assets held for sale |  | 29,486,905
Current liabilities |  |
Short-term borrowings |  | 6,455,031
Nonrecourse securitization debt |  | 158,112
Other current liabilities |  | 17,144,259
Total current liabilities held for sale |  | 23,757,402
Non-current liabilities |  |
Nonrecourse securitization debt |  | 1,759,238
Other non-current liabilities |  | 52,374
Total non-current liabilities held for sale |  | 1,811,612
Total liabilities held for sale |  | 25,569,014
Redeemable non-controlling interests held for sale |  | 7,056,921
(*) Other investments represent various financial products with variable interest rates or principal non-guaranteed purchased by JD Digits from financial institutions, which are referred to as the issuers, such as commercial banks, insurance companies and trust companies. The underlying assets of the financial products mainly include debt securities, equity securities and loan receivables, and the interest generated from the financial products depends on the performance of the underlying assets. The issuers of these products generally attempt to maintain a relatively fixed “expected” interest rate throughout the terms of such structured products. The financial products are used by JD Digits as underlying assets in designing new financial products that it will in turn offer to third-party investors. These redesigned financial products to be resold to third-party investors have relatively lower yield rates such that JD Digits will earn yield differentials. (**) The intra-group transactions should be eliminated in full as normal. As the Group will continue provide the financial support to JD Digits, therefore, the elimination entries were recorded in discontinued operations/held for sales assets/liabilities.
|  | For the year ended December 31,
|  | 2016 |  | 2017 (***)
|  | RMB |  | RMB
Net revenues |  | 1,831,698 |  | 2,392,903
Operating expenses |  | (2,724,942) |  | (2,067,622)
Income/(Loss) from operations of discontinued operations |  | (893,244) |  | 325,281
Other expenses |  | (459,079) |  | (316,245)
Income/(Loss) from discontinued operations before tax |  | (1,352,323) |  | 9,036
Income tax expenses |  | (13,109) |  | (2,121)
Net income/(loss) from discontinued operations, net of tax |  | (1,365,432) |  | 6,915
Net loss from discontinued operations attributable to non-controlling interests shareholders |  | (3,743) |  | (5,030)
Net income from discontinued operations attributable to mezzanine classified non-controlling interests shareholders |  | 444,657 |  | 281,021
Net loss from discontinued operations attributable to ordinary shareholders |  | (1,806,346) |  | (269,076)
|  | For the year ended December 31,
|  | 2016 |  | 2017 (***)
|  | RMB |  | RMB
Net cash used in discontinued operating activities |  | (1,226,526) |  | (2,485,741)
Net cash used in discontinued investing activities |  | (28,412,020) |  | (17,871,171)
Net cash provided by discontinued financing activities |  | 32,050,146 |  | 14,054,620
(***) Included financial results of discontinued operations from January 1, 2017 to June 30, 2017. There were no profit sharing payments recognized in the Group’s consolidated financial statements after the JD Digits reorganization as JD Digits was in a loss position on a cumulative basis. According to the JD Digits reorganization arrangements, upon certain redemption events of JD Digits, and on the premise that JD Digits is the first obligator, the Group and Suqian Dongtai Jinrong Investment Management Center, an entity controlled by Mr. Richard Qiangdong Liu further has the obligation to make up the remaining gap (if any) of the redemption price to the shareholders of JD Digits when all other means are exhausted, and such amount the Group needs to pay will be capped by the proceeds from the sale of the Group’s shares of JD Digits if the Group becomes a shareholder of JD Digits or the liquidity payment the Group would receive upon the liquidity events. As the Group and JD Digits are under common control of Mr.Richard Qiangdong Liu, the Group is therefore exempted from recording a guarantee liability in its consolidated financial statements. Based on the Group's assessment, the chance to settle the guarantee obligation by the Group is remote as of December 31,2017 and 2018. As disclosed above, the Group’s exposure to pay the redemption price is limited to the proceeds from the sales of the Group’s shares of JD Digits or the liquidity event payment the Group received upon the certain liquidity events. And the Group’s maximum exposure to loss as a result of its involvement with JD Digits relates to net amounts due from JD Digits were RMB12,076,035 and RMB3,902,238 as of December 31, 2017 and 2018, respectively (Note 29).

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