UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 6-K

 


 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of August 2020

 

Commission File Number: 001-35126

 


 

21Vianet Group, Inc.

 


 

Guanjie Building, Southeast 1st Floor
10# Jiuxianqiao East Road

Chaoyang District

Beijing 100016

The People’s Republic of China

(86 10) 8456 2121

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 


 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  x            Form 40-F  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  o

 

 

 


 

INCORPORATION BY REFERENCE

 

The unaudited interim condensed consolidated financial statements of 21Vianet Group, Inc. for the six months ended June 30, 2019 and 2020 and as of June 30, 2020 and related notes attached as exhibit 99.1 to this current report on Form 6-K are hereby incorporated by reference into the Registration Statement on Form F-3 of 21Vianet Group, Inc. (File No. 333-240044), and shall be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.

 

2


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

21Vianet Group, Inc.

 

 

 

 

 

By

:

/s/ Sharon Xiao Liu

 

Name

:

Sharon Xiao Liu

 

Title

:

Chief Financial Officer

 

Date: August 24, 2020

 

3


 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Unaudited Interim Condensed Consolidated Financial Statements of 21Vianet Group, Inc.

 

4


Exhibit 99.1

 

21VIANET GROUP, INC.

 

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page

Contents

 

 

 

Condensed Consolidated Balance Sheet as of December 31, 2019 and Unaudited Interim Condensed Consolidated Balance Sheet as of June 30, 2020

F-2 — F-5

 

 

Unaudited Interim Condensed Consolidated Statements of Operations for the Six Months Periods Ended June 30, 2019 and 2020

F-6

 

 

Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss for the Six Months Periods Ended June 30, 2019 and 2020

F-7

 

 

Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Six Months Periods Ended June 30, 2019 and 2020

F-8 — F-10

 

 

Unaudited Interim Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Periods Ended June 30, 2019 and 2020

F-11 — F-12

 

 

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

F-13 — F-47

 

F-1


 

21VIANET GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2019

AND UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2020

(Amounts in thousands of Renminbi (“RMB”) and US dollars (“US$”))

 

 

 

 

 

As of

 

 

 

Notes

 

December 31,
2019

 

June 30, 2020

 

 

 

 

 

RMB

 

RMB

 

US$

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

1,808,483

 

4,325,324

 

612,210

 

Restricted cash

 

 

 

478,873

 

427,415

 

60,497

 

Accounts and notes receivable (net of allowance for doubtful debt of RMB67,828 and RMB67,909 (US$9,612) as of December 31, 2019 and June 30, 2020, respectively)

 

4

 

657,158

 

958,133

 

135,615

 

Short-term investments

 

 

 

363,856

 

157,546

 

22,299

 

Prepaid expenses and other current assets

 

5

 

1,618,149

 

1,777,856

 

251,638

 

Amounts due from related parties

 

19

 

301,665

 

78,290

 

11,081

 

Total current assets

 

 

 

5,228,184

 

7,724,564

 

1,093,340

 

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

6

 

5,443,565

 

6,522,239

 

923,163

 

Intangible assets, net

 

7

 

410,595

 

421,029

 

59,593

 

Land use rights, net

 

8

 

233,154

 

259,426

 

36,719

 

Operating lease right-of-use assets, net

 

13

 

1,221,616

 

1,148,669

 

162,584

 

Goodwill

 

9

 

989,530

 

995,200

 

140,861

 

Restricted cash

 

 

 

69,821

 

69,628

 

9,855

 

Deferred tax assets

 

18

 

209,366

 

213,856

 

30,269

 

Long-term investments

 

10

 

169,653

 

162,457

 

22,994

 

Amounts due from related parties

 

19

 

20,654

 

69,632

 

9,856

 

Other non-current assets

 

 

 

277,568

 

318,358

 

45,061

 

Total non-current assets

 

 

 

9,045,522

 

10,180,494

 

1,440,955

 

Total assets

 

 

 

14,273,706

 

17,905,058

 

2,534,295

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-2


 

21VIANET GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2019

AND UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2020

(CONTINUED)

(Amounts in thousands of RMB and US$)

 

 

 

 

 

As of

 

 

 

Notes

 

December 31,
2019

 

June 30, 2020

 

 

 

 

 

RMB

 

RMB

 

US$

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Short-term bank borrowings (including short-term bank borrowings of the Consolidated VIEs without recourse to the primary beneficiaries of RMB232,323 and RMB236,323 (US$33,449) as of December 31, 2019 and June 30, 2020, respectively)

 

11

 

234,500

 

238,500

 

33,757

 

Accounts and notes payable (including accounts and notes payable of the Consolidated VIEs without recourse to the primary beneficiaries of RMB211,710 and RMB251,456 (US$35,591) as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

303,128

 

337,402

 

47,756

 

Accrued expenses and other payables (including accrued expenses and other payables of the Consolidated VIEs without recourse to the primary beneficiaries of RMB622,160 and RMB 1,250,521 (US$177,000) as of December 31, 2019 and June 30, 2020, respectively)

 

12

 

978,935

 

1,592,434

 

225,394

 

Advances from customers (including advances from customers of the Consolidated VIEs without recourse to the primary beneficiaries of RMB1,068,692 and RMB1,187,661 (US$168,103) as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

1,068,692

 

1,187,661

 

168,103

 

Deferred revenue (including deferred revenue of the Consolidated VIEs without recourse to the primary beneficiaries of RMB52,088 and RMB47,802 (US$6,766) as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

57,625

 

54,327

 

7,689

 

Income taxes payable (including income taxes payable of the Consolidated VIEs without recourse to the primary beneficiaries of RMB8,175 and RMB10,033 (US$1,420) as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

48,032

 

42,683

 

6,041

 

Amounts due to related parties (including amounts due to related parties of the Consolidated VIEs without recourse to the primary beneficiaries of RMB56,977 and RMB 52,647 (US$7,452) as of December 31, 2019 and June 30, 2020, respectively)

 

19

 

166,935

 

67,574

 

9,564

 

Current portion of long-term bank borrowings (including current portion of long-term bank borrowings of the Consolidated VIEs without recourse to the primary beneficiaries of RMB32,500 and RMB37,000 (US$5,237) as of December 31, 2019 and June 30, 2020, respectively)

 

11

 

32,500

 

44,500

 

6,299

 

Current portion of finance lease liabilities (including current portion of finance lease liabilities of the Consolidated VIEs without recourse to the primary beneficiaries of RMB220,363 and RMB294,080 (US$41,624) as of December 31, 2019 and June 30, 2020, respectively)

 

13

 

227,115

 

302,012

 

42,747

 

Deferred government grants (including deferred government grants of the Consolidated VIEs without recourse to the primary beneficiaries of RMB2,595 and RMB2,074 (US$294) as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

2,595

 

2,074

 

294

 

Current portion of bonds payable

 

14

 

911,147

 

927,636

 

131,298

 

Current portion of operating lease liabilities (including current portion of operating lease liabilities of the Consolidated VIEs without recourse to the primary beneficiaries of RMB410,422 and RMB460,578 (US$65,191) as of December 31, 2019 and June 30, 2020, respectively)

 

13

 

437,817

 

489,851

 

69,333

 

Total current liabilities

 

 

 

4,469,021

 

5,286,654

 

748,275

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-3


 

21VIANET GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2019

AND UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2020

(CONTINUED)

(Amounts in thousands of RMB and US$)

 

 

 

 

 

As of

 

 

 

Notes

 

December 31,
2019

 

June 30, 2020

 

 

 

 

 

RMB

 

RMB

 

US$

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

Long-term bank borrowings (including long-term bank borrowings of the Consolidated VIEs without recourse to the primary beneficiaries of RMB79,500 and RMB221,758 (US$31,388) as of December 31, 2019 and June 30, 2020, respectively)

 

11

 

79,500

 

460,347

 

65,158

 

Bonds payable

 

14

 

2,060,708

 

2,099,814

 

297,209

 

Convertible promissory notes

 

16

 

 

3,038,867

 

430,124

 

Non-current portion of finance lease liabilities (including non-current portion of finance lease liabilities of the Consolidated VIEs without recourse to the primary beneficiaries of RMB549,669 and RMB640,970 (US$90,723) as of December 31, 2019 and June 30, 2020, respectively)

 

13

 

896,927

 

996,267

 

141,012

 

Unrecognized tax benefits (including unrecognized tax benefits of the Consolidated VIEs without recourse to the primary beneficiaries of RMB1,991 and RMB3,377 (US$478) as of December 31, 2019 and June 30, 2020, respectively)

 

18

 

2,443

 

3,729

 

528

 

Deferred tax liabilities (including deferred tax liabilities of the Consolidated VIEs without recourse to the primary beneficiaries of RMB82,725 and RMB116,005 (US$16,419) as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

202,572

 

254,064

 

35,960

 

Deferred government grants (including deferred government grants of the Consolidated VIEs without recourse to the primary beneficiaries of RMB5,906 and RMB5,002 (US$708) as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

5,906

 

5,002

 

708

 

Amounts due to related parties (including amounts due to related parties of the Consolidated VIEs without resource to the primary beneficiaries of RMB745,899 and RMB780,309 (US$110,446) as of December 31, 2019 and June 30, 2020, respectively)

 

19

 

745,899

 

780,309

 

110,446

 

Non-current portion of operating lease liabilities (including non-current portion of operating lease liabilities of the Consolidated VIEs without resource to the primary beneficiaries of RMB529,546 and RMB388,581 (US$55,000) as of December 31, 2019 and June 30, 2020, respectively)

 

13

 

579,102

 

444,113

 

62,860

 

Total non-current liabilities

 

 

 

4,573,057

 

8,082,512

 

1,144,005

 

Total liabilities

 

 

 

9,042,078

 

13,369,166

 

1,892,280

 

Commitments and contingencies

 

22

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-4


 

21VIANET GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2019

AND UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2020

(CONTINUED)

(Amounts in thousands of RMB and US$, except for number of shares)

 

 

 

 

 

As of

 

 

 

Notes

 

December 31,
2019

 

June 30, 2020

 

 

 

 

 

RMB

 

RMB

 

US$

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

Class A Ordinary shares (par value of US$0.00001 per share; 1,200,000,000 and 1,199,790,000 shares authorized; 505,253,850 and 516,413,453 issued and outstanding as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

34

 

34

 

5

 

Class B Ordinary Shares (par value of US$0.00001 per share; 300,000,000 and 300,000,000 shares authorized; 174,649,638 and 164,125,381 issued and outstanding as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

12

 

12

 

2

 

Class C Ordinary Shares (par value of US$0.00001 per share; 60,000 and 60,000 shares authorized; 60,000 and 60,000 shares issued and outstanding as of December 31, 2019 and June 30, 2020, respectively)

 

 

 

 

 

 

Series A perpetual convertible preferred shares (par value of US$0.00001 per share; nil and 150,000 shares issued and outstanding as of December 31,2019 and June 30, 2020, respectively)

 

15

 

 

1,044,913

 

147,898

 

Additional paid-in capital

 

 

 

9,202,567

 

9,709,414

 

1,374,278

 

Accumulated other comprehensive income

 

 

 

77,904

 

86,951

 

12,307

 

Statutory reserves

 

 

 

60,469

 

59,177

 

8,377

 

Accumulated deficit

 

 

 

(4,038,390

)

(6,301,594

)

(891,933

)

Treasury stock

 

 

 

(349,523

)

(349,523

)

(49,472

)

Total 21Vianet Group, Inc. shareholders’ equity

 

 

 

4,953,073

 

4,249,384

 

601,462

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest

 

 

 

278,555

 

286,508

 

40,553

 

Total shareholders’ equity

 

 

 

5,231,628

 

4,535,892

 

642,015

 

Total liabilities and shareholders’ equity

 

 

 

14,273,706

 

17,905,058

 

2,534,295

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-5


 

21VIANET GROUP, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands of RMB and US$, except for number of shares and per share data)

 

 

 

 

 

For the six months periods ended June 30,

 

 

 

Notes

 

2019

 

2020

 

 

 

 

 

RMB

 

RMB

 

US$

 

Net revenues

 

 

 

 

 

 

 

 

 

Hosting and related services

 

 

 

1,759,879

 

2,234,858

 

316,324

 

Cost of revenues

 

 

 

 

 

 

 

 

 

Hosting and related services

 

 

 

(1,290,856

)

(1,728,415

)

(244,641

)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

469,023

 

506,443

 

71,683

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Sales and marketing expenses

 

 

 

(90,722

)

(100,362

)

(14,205

)

Research and development expenses

 

 

 

(41,354

)

(44,649

)

(6,320

)

General and administrative expenses

 

 

 

(223,137

)

(244,696

)

(34,634

)

Allowance for doubtful debt

 

 

 

(479

)

(1,183

)

(167

)

Total operating expenses

 

 

 

(355,692

)

(390,890

)

(55,326

)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

113,331

 

115,553

 

16,357

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

24,240

 

21,095

 

2,986

 

Interest expense

 

 

 

(160,644

)

(205,000

)

(29,016

)

Other income

 

 

 

12,033

 

9,056

 

1,282

 

Other expenses

 

 

 

(4,235

)

(23,991

)

(3,396

)

Changes in the fair value of convertible promissory notes

 

21

 

 

(1,612,054

)

(228,171

)

Foreign exchange loss, net

 

 

 

(10,315

)

(41,472

)

(5,870

)

Debt extinguishment loss

 

 

 

(17,804

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes and loss from equity method investments

 

 

 

(43,394

)

(1,736,813

)

(245,828

)

 

 

 

 

 

 

 

 

 

 

Income tax expenses

 

18

 

(20,084

)

(42,896

)

(6,072

)

Loss from equity method investments

 

 

 

(29,215

)

(6,590

)

(933

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

(92,693

)

(1,786,299

)

(252,833

)

 

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interest

 

 

 

(3,727

)

(4,814

)

(681

)

 

 

 

 

 

 

 

 

 

 

Net loss attributable to 21Vianet Group, Inc.

 

 

 

(96,420

)

(1,791,113

)

(253,514

)

 

 

 

 

 

 

 

 

 

 

Deemed distribution to Series A perpetual convertible preferred shareholders

 

 

 

 

(470,643

)

(66,615

)

 

 

 

 

 

 

 

 

 

 

Net loss attributable to the Company’s ordinary shareholders

 

 

 

(96,420

)

(2,261,756

)

(320,129

)

 

 

 

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

 

 

 

 

Basic

 

20

 

RMB

(0.14

)

RMB

(3.42

)

US$

(0.48

)

Diluted

 

20

 

RMB

(0.14

)

RMB

(3.42

)

US$

(0.48

)

 

 

 

 

 

 

 

 

 

 

Shares used in loss per share computation:

 

 

 

 

 

 

 

 

 

Basic

 

20

 

677,689,041

 

660,543,890

 

660,543,890

 

Diluted

 

20

 

677,689,041

 

660,543,890

 

660,543,890

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-6


 

21VIANET GROUP, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands of RMB and US$)

 

 

 

For the six months periods ended June 30,

 

 

 

2019

 

2020

 

 

 

RMB

 

RMB

 

US$

 

Net loss

 

(92,693

)

(1,786,299

)

(252,833

)

Other comprehensive income, net of tax of nil:

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax of nil

 

3,651

 

9,047

 

1,281

 

Other comprehensive income, net of tax of nil

 

3,651

 

9,047

 

1,281

 

Comprehensive loss

 

(89,042

)

(1,777,252

)

(251,552

)

Comprehensive income attributable to noncontrolling interest

 

(3,727

)

(4,814

)

(681

)

Comprehensive loss attributable to 21Vianet Group, Inc.

 

(92,769

)

(1,782,066

)

(252,233

)

Deemed distribution to Series A perpetual convertible preferred shareholders

 

 

(470,643

)

(66,615

)

Comprehensive loss attributable to the Company’s ordinary shareholders

 

(92,769

)

(2,252,709

)

(318,848

)

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-7


 

21VIANET GROUP, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands of RMB and US$)

 

 

 

For the six months periods ended June 30,

 

 

 

2019

 

2020

 

 

 

RMB

 

RMB

 

US$

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net loss

 

(92,693

)

(1,786,299

)

(252,833

)

Adjustments to reconcile net loss to net cash generated from operating activities:

 

 

 

 

 

 

 

Foreign exchange loss, net

 

10,315

 

41,472

 

5,870

 

Depreciation and amortization

 

376,834

 

418,588

 

59,247

 

Loss on disposal of property and equipment and intangible assets

 

1,507

 

2,567

 

363

 

Allowance for doubtful accounts

 

479

 

1,183

 

167

 

Share-based compensation expense

 

24,030

 

31,662

 

4,481

 

Deferred income tax (benefits) loss

 

(16,410

)

4,081

 

578

 

Loss from equity method investments

 

29,215

 

6,591

 

933

 

Changes in the fair value of convertible promissory notes (Note 16)

 

 

1,612,054

 

228,171

 

Amortization of right-of-use assets

 

38,380

 

202,598

 

28,676

 

Gain from disposal of equity investments without readily determinable fair value

 

(5,477

)

(257

)

(36

)

Loss on debt extinguishment

 

17,804

 

 

 

Changes in operating assets and liabilities, net of effects of acquisitions and disposals:

 

 

 

 

 

 

 

Accounts and notes receivable

 

(148,747

)

(281,298

)

(39,815

)

Prepaid expenses and other current assets

 

(247,283

)

(134,942

)

(19,098

)

Amounts due from related parties

 

(19,018

)

(26,940

)

(3,813

)

Accounts and notes payables

 

3,064

 

34,274

 

4,851

 

Unrecognized tax (benefits) loss

 

(2,725

)

1,286

 

183

 

Accrued expenses and other payables

 

(7,284

)

139,214

 

19,704

 

Deferred revenue

 

(12,876

)

(3,298

)

(467

)

Advances from customers

 

222,255

 

118,969

 

16,839

 

Income taxes payable

 

15,909

 

(5,349

)

(757

)

Deferred government grants

 

500

 

 

 

Amounts due to related parties

 

5,167

 

(751

)

(106

)

Lease liabilities

 

(33,399

)

(154,964

)

(21,934

)

Net cash generated from operating activities

 

159,547

 

220,441

 

31,204

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-8


 

21VIANET GROUP, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Amounts in thousands of RMB and US$)

 

 

 

For the six months periods ended June 30,

 

 

 

2019

 

2020

 

 

 

RMB

 

RMB

 

US$

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchases of property and equipment

 

(341,990

)

(914,265

)

(129,406

)

Purchases of intangible assets

 

(11,318

)

(16,236

)

(2,298

)

Proceeds from disposal of property and equipment

 

266

 

185

 

26

 

Proceeds from disposal of land use right

 

 

9,397

 

1,330

 

Collection of consideration for disposal of subsidiaries

 

 

5,802

 

821

 

Payments for short-term investments

 

(68,747

)

(36,432

)

(5,157

)

Payment of loans to related parties

 

(66,704

)

(48,449

)

(6,858

)

Receipt of loans to third parties

 

 

30,000

 

4,246

 

Proceeds received from maturity of short-term investments

 

148,092

 

246,644

 

34,910

 

Proceeds from disposal of long-term investments

 

14,288

 

923

 

131

 

Payments for deposit for acquiring data center

 

(52,227

)

(14,043

)

(1,988

)

Collection of deposit for acquiring data center

 

 

3,000

 

424

 

Cash receipt from a subsidiary acquired, net of cash paid

 

 

47

 

7

 

Payment for an assets acquisition

 

(68,196

)

(70,000

)

(9,908

)

Cash receipt from related party due to restructuring (Note 19)

 

 

140,738

 

19,920

 

Net cash used in investing activities

 

(446,536

)

(662,689

)

(93,800

)

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Amount due to related parties

 

(47,893

)

 

 

Proceeds from exercise of stock options

 

337

 

2,336

 

331

 

Proceeds from issuance of Series A perpetual convertible preferred shares (Note 15)

 

 

1,058,325

 

149,796

 

Proceeds from issuance of 2020/2021 Notes

 

2,012,084

 

 

 

Payment of issuance cost of 2020/2021 Notes

 

(35,427

)

 

 

Repurchase of 2020 Notes

 

(1,021,539

)

 

 

Proceeds from issuance of convertible promissory notes (Note 16)

 

 

1,409,385

 

199,485

 

Payment of cost of convertible promissory notes (Note 16)

 

 

(18,762

)

(2,656

)

Proceeds from short-term bank borrowings

 

30,000

 

34,000

 

4,812

 

Repayment of short-term bank borrowings

 

(50,000

)

(30,000

)

(4,246

)

Proceeds from long-term bank borrowings

 

 

408,847

 

57,869

 

Repayment of long-term bank borrowings

 

(27,779

)

(16,000

)

(2,265

)

Payments for purchase of property and equipment through finance leases

 

(158,853

)

(150,501

)

(21,302

)

Rental payment and deposits for financing arrangements

 

(15,549

)

(32,357

)

(4,580

)

Contribution from noncontrolling interest in subsidiaries

 

4,089

 

3,139

 

444

 

Proceeds from financing arrangements

 

 

214,448

 

30,353

 

Net cash generated from financing activities

 

689,470

 

2,882,860

 

408,041

 

Effect of foreign exchange rate changes on cash and cash equivalents and restricted cash

 

21,898

 

24,578

 

3,480

 

Net increase in cash and cash equivalents and restricted cash

 

424,379

 

2,465,190

 

348,925

 

Cash and cash equivalents and restricted cash at beginning of period

 

2,661,021

 

2,357,177

 

333,637

 

Cash and cash equivalents and restricted cash at end of period

 

3,085,400

 

4,822,367

 

682,562

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-9


 

21VIANET GROUP, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Amounts in thousands of RMB and US$)

 

 

 

For the six months periods ended June 30,

 

 

 

2019

 

2020

 

 

 

RMB

 

RMB

 

US$

 

Reconciliation of cash and cash equivalents and restricted cash to the consolidated balance sheets

 

 

 

 

 

 

 

Cash and cash equivalents

 

2,864,359

 

4,325,324

 

612,210

 

Restricted cash-current

 

152,025

 

427,415

 

60,497

 

Restricted cash-non-current

 

69,016

 

69,628

 

9,855

 

Total cash and cash equivalents and restricted cash

 

3,085,400

 

4,822,367

 

682,562

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Income taxes paid

 

(57,407

)

(45,948

)

(6,504

)

Interest paid

 

(87,903

)

(128,552

)

(18,195

)

Interest received

 

27,042

 

15,410

 

2,181

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash activities:

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

7,644

 

93,651

 

13,255

 

Purchase of property and equipment through finance leases

 

89,512

 

67,584

 

9,566

 

Purchase of property and equipment included in accrued expenses and other payables

 

(8,241

)

148,914

 

21,077

 

Purchase of intangible assets included in accrued expenses and other payables

 

(1,342

)

4,965

 

703

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-10


 

21VIANET GROUP, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

(Amounts in thousands of RMB and US$, except for number of shares)

 

 

 

Number of
ordinary
shares

 

Treasury
Stock

 

Ordinary
shares

 

Additional
paid-in
capital

 

Accumulated
other
comprehensive
income

 

Statutory
reserves

 

Accumulated
deficit

 

Total
21Vianet
Group, Inc.
shareholders’
equity

 

Noncontrolling
interest

 

Total
shareholders’
equity

 

Balance as of January 1, 2019

 

674,356,266

 

(337,683

)

46

 

9,141,494

 

85,979

 

42,403

 

(3,838,032

)

5,094,207

 

268,977

 

5,363,184

 

Consolidated net loss

 

 

 

 

 

 

 

(96,420

)

(96,420

)

3,727

 

(92,693

)

Contribution by noncontrolling interest

 

 

 

 

 

 

 

 

 

4,089

 

4,089

 

Foreign exchange difference

 

 

 

 

 

3,651

 

 

 

3,651

 

 

3,651

 

Issuance of new shares

 

 

 

 

 

 

 

 

 

 

 

Issuance of new shares for share option exercise and restricted share units vested

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

26,965

 

 

 

 

26,965

 

 

26,965

 

Appropriation of statutory reserves

 

 

 

 

 

 

1,422

 

(1,422

)

 

 

 

Share issued to depository bank

 

 

 

 

 

 

 

 

 

 

 

Share repurchase

 

 

 

 

 

 

 

 

 

 

 

Share options exercised

 

19,769

 

 

 

337

 

 

 

 

337

 

 

337

 

Restricted share units vested

 

830,196

 

 

 

 

 

 

 

 

 

 

Settlement of share options with shares held by depository bank

 

(849,965

)

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2019

 

674,356,266

 

(337,683

)

46

 

9,168,796

 

89,630

 

43,825

 

(3,935,874

)

5,028,740

 

276,793

 

5,305,533

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-11


 

21VIANET GROUP, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

(Amounts in thousands of RMB and US$, except for number of shares)

 

 

 

Number of
ordinary
shares

 

Treasury
Stock

 

Ordinary
shares

 

Series A
perpetual
convertible
preferred
shareholders

 

Additional
paid-in
capital

 

Accumulated
other
comprehensive
income

 

Statutory
reserves

 

Accumulated
deficit

 

Total
21Vianet
Group, Inc.
shareholders’
equity

 

Noncontrolling
interest

 

Total
shareholders’
equity

 

Balance as of January 1, 2020

 

679,963,488

 

(349,523

)

46

 

 

9,202,567

 

77,904

 

60,469

 

(4,038,390

)

4,953,073

 

278,555

 

5,231,628

 

Consolidated net loss

 

 

 

 

 

 

 

 

(1,791,113

)

(1,791,113

)

4,814

 

(1,786,299

)

Contribution by noncontrolling interest

 

 

 

 

 

 

 

 

 

 

3,139

 

3,139

 

Cumulative adjustment for changes in accounting policy

 

 

 

 

 

 

 

 

(2,740

)

(2,740

)

 

(2,740

)

Issuance of perpetual convertible preferred shares

 

 

 

 

1,044,913

 

 

 

 

 

1,044,913

 

 

1,044,913

 

Deemed distribution to perpetual convertible preferred shareholders

 

 

 

 

 

470,643

 

 

 

(470,643

)

 

 

 

Issuance of new shares for share option exercise and restricted share units vested

 

635,346

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange difference

 

 

 

 

 

120

 

9,047

 

 

 

9,167

 

 

9,167

 

Share-based compensation

 

 

 

 

 

33,748

 

 

 

 

33,748

 

 

33,748

 

Appropriation of statutory reserves

 

 

 

 

 

 

 

(1,292

)

1,292

 

 

 

 

Share options exercised

 

425,892

 

 

 

 

2,336

 

 

 

 

2,336

 

 

2,336

 

Restricted share units vested

 

2,044,482

 

 

 

 

 

 

 

 

 

 

 

Settlement of share options with shares held by depository bank

 

(2,470,374

)

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

 

680,598,834

 

(349,523

)

46

 

1,044,913

 

9,709,414

 

86,951

 

59,177

 

(6,301,594

)

4,249,384

 

286,508

 

4,535,892

 

Balance as of June 30, 2020 US$

 

 

 

(49,472

)

7

 

147,898

 

1,374,278

 

12,307

 

8,377

 

(891,933

)

601,462

 

40,553

 

642,015

 

 

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

 

F-12


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

1.                       ORGANIZATION

 

21Vianet Group, Inc. was incorporated under the laws of the Cayman Islands on October 16, 2009 and its principal activity is investment holding. The Company through its consolidated subsidiaries and variable interest entities (the “VIEs”) are principally engaged in the provision of hosting and related services.

 

(a)                  VIE disclosures

 

Except for certain property, leasehold improvements and land use right with total carrying amounts of RMB214,106 (US$30,305) that were pledged to secure banking borrowings granted to the Company (Note 11), there were no pledges or collateralization of the Consolidated VIEs’ assets. Creditors of the Consolidated VIEs have no recourse to the general credit of the primary beneficiaries of the Consolidated VIEs, and such amounts have been parenthetically presented on the face of the consolidated balance sheets. The Consolidated VIEs operate the data centers and own facilities including data center buildings, leasehold improvements, fiber optic cables, computers and network equipment, which are recognized in the Company’s consolidated financial statements. They also hold certain value-added technology licenses, registered copyrights, trademarks and registered domain names, including the official website, which are also considered as revenue-producing assets. However, none of such assets was recorded on the Company’s consolidated balance sheets as such assets were all acquired or internally developed with insignificant cost and expensed as incurred. In addition, the Company also hires data center operation and marketing workforce for its daily operations and such costs are expensed when incurred. The Company has not provided any financial or other support that it was not previously contractually required to provide to the Consolidated VIEs during the periods presented.

 

F-13


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

1.                       ORGANIZATION (CONTINUED)

 

The following tables represent the financial information of the Consolidated VIEs as of December 31, 2019 and June 30, 2020 and for the six months periods ended June 30, 2019 and 2020 before eliminating the intercompany balances and transactions between the Consolidated VIEs and other entities within the Company:

 

 

 

As of 

 

 

 

December 31,
2019

 

June 30, 2020

 

 

 

RMB

 

RMB

 

US$

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

591,503

 

628,328

 

88,934

 

Restricted cash

 

260,961

 

207,754

 

29,406

 

Accounts receivable (net of allowance for doubtful debt of RMB66,416 and RMB66,331 (US$9,389) as of December 31, 2019 and June 30, 2020, respectively)

 

513,440

 

813,023

 

115,076

 

Prepaid expenses and other current assets

 

1,371,564

 

1,551,978

 

219,668

 

Amounts due from related parties

 

57,982

 

74,909

 

10,603

 

Total current assets

 

2,795,450

 

3,275,992

 

463,687

 

Non-current assets:

 

 

 

 

 

 

 

Property and equipment, net

 

3,580,341

 

4,547,427

 

643,647

 

Intangible assets, net

 

151,722

 

183,090

 

25,915

 

Land use rights, net

 

58,588

 

47,342

 

6,701

 

Operating lease right-of-use assets, net

 

1,144,846

 

1,063,804

 

150,572

 

Goodwill

 

302,647

 

308,318

 

43,640

 

Restricted cash

 

66,119

 

65,817

 

9,316

 

Deferred tax assets

 

180,959

 

187,913

 

26,597

 

Amounts due from related parties

 

20,654

 

21,182

 

2,998

 

Other non-current assets

 

262,685

 

304,398

 

43,085

 

Long-term investments

 

189,571

 

176,733

 

25,015

 

Total non-current assets

 

5,958,132

 

6,906,024

 

977,486

 

Total assets

 

8,753,582

 

10,182,016

 

1,441,173

 

Current liabilities:

 

 

 

 

 

 

 

Short-term bank borrowings

 

232,323

 

236,323

 

33,449

 

Accounts and notes payable

 

211,710

 

251,456

 

35,591

 

Accrued expenses and other payables

 

622,160

 

1,250,521

 

177,000

 

Advance from customers

 

1,068,692

 

1,187,661

 

168,103

 

Deferred revenue

 

52,088

 

47,802

 

6,766

 

Income tax payable

 

8,175

 

10,033

 

1,420

 

Amounts due to inter-companies (1)

 

2,786,838

 

3,119,745

 

441,571

 

Amounts due to related parties

 

56,977

 

52,647

 

7,452

 

Current portion of finance lease liabilities

 

220,363

 

294,080

 

41,624

 

Current portion of long-term bank borrowings

 

32,500

 

37,000

 

5,237

 

Deferred government grants

 

2,595

 

2,074

 

294

 

Current portion of operating lease liabilities

 

410,422

 

460,578

 

65,191

 

Total current liabilities

 

5,704,843

 

6,949,920

 

983,698

 

 

F-14


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

1.                       ORGANIZATION (CONTINUED)

 

 

 

As of

 

 

 

December 31,
2019

 

June 30, 2020

 

 

 

RMB

 

RMB

 

US$

 

Non-current liabilities:

 

 

 

 

 

 

 

Amounts due to inter-companies (1)

 

1,020,972

 

1,020,972

 

144,509

 

Amounts due to related parties

 

745,899

 

780,309

 

110,446

 

Long-term bank borrowings

 

79,500

 

221,758

 

31,388

 

Non-current portion of finance lease liabilities

 

549,669

 

640,970

 

90,723

 

Unrecognized tax benefits

 

1,991

 

3,377

 

478

 

Deferred tax liabilities

 

82,725

 

116,005

 

16,419

 

Deferred government grants

 

5,906

 

5,002

 

708

 

Non-current portion of operating lease liabilities

 

529,546

 

388,581

 

55,000

 

Total non-current liabilities

 

3,016,208

 

3,176,974

 

449,671

 

Total liabilities

 

8,721,051

 

10,126,894

 

1,433,369

 

 

 

 

For the six months periods ended June 30,

 

 

 

2019

 

2020

 

 

 

RMB

 

RMB

 

US$

 

Net revenues

 

1,319,083

 

1,770,597

 

250,612

 

Net profit

 

16,526

 

22,591

 

3,198

 

 

 

 

For the six months periods ended June 30,

 

 

 

2019

 

2020

 

 

 

RMB

 

RMB

 

US$

 

Net cash generated from operating activities

 

179,800

 

258,807

 

36,632

 

Net cash used in investing activities

 

(547,725

)

(712,997

)

(100,918

)

Net cash generated from financing activities

 

187,985

 

437,506

 

61,925

 

Net decrease in cash and cash equivalents and restricted cash

 

(179,940

)

(16,684

)

(2,361

)

 


(1)                  Amounts due to inter-companies consist of intercompany payables to the other companies within the Company for the purchase of telecommunication resources and property and equipment on behalf of the Consolidated VIEs.

 

F-15


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

2.                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)                  Basis of presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding financial reporting that are consistent with those used in the preparation of the Company’s audited consolidated financial statements for the years ended December 31, 2019 and 2018. Accordingly, these unaudited interim condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.

 

In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, operating results and cash flows of the Company for each of the periods presented. The results of operations for the six months periods ended June 30, 2020 are not necessarily indicative of results to be expected for any other interim period or for the year ending December 31, 2020. The condensed consolidated balance sheet as of December 31, 2019 was derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP for annual financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2019.

 

(b)                  Use of estimates

 

The preparation of the unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant estimates and assumptions reflected in the Company’s financial statements include, but are not limited to, estimating the useful lives of long-lived assets, determining the fair value of equity investments, accounting for investments and the subsequent impairment assessment, determining the allowance for credit losses for financial assets, determining the valuation allowance for deferred tax assets, accounting for share-based compensation arrangements, goodwill and long-lived assets impairment assessment, measurement of right-of-use assets and lease liabilities, determining the fair value of convertible promissory notes and assessing the initial valuation of the assets acquired and liabilities assumed in a business combination. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the unaudited interim condensed consolidated financial statements.

 

(c)                   Convenience translation

 

Amounts in US$ are presented for the convenience of the reader and are translated at the noon buying rate of US$1.00 to RMB7.0651 on June 30, 2020, the last business day in June 2020, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be converted, realized or settled into US$ at such rate or at any other rate.

 

F-16


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

2.                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(d)                 Accounts receivable and allowance for credit losses

 

Accounts receivable are carried at net realizable value. An allowance for credit losses for financial assets, including accounts receivable, carried at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on credit losses expected to arise over the life of the asset’s contractual term, which includes consideration of prepayments. Assets are written off when the Company determines that such financial assets are deemed uncollectible and are recognized as a deduction from the allowance for credit losses. Expected recoveries of amounts previously written off, not to exceed the aggregate of the amount previously written off, are included in determining the necessary reserve at the balance sheet date. The Company pools financial assets based on similar risk characteristics to estimate expected credit losses. The Company estimates expected credit losses on financial assets individually when those assets do not share similar risk characteristics. The Company closely monitors its accounts receivable including timely account reconciliations, detailed reviews of past due accounts, updated credit limits, and monthly analysis of the adequacy of their reserve for credit losses.

 

The Company utilizes a loss rate approach to determine lifetime expected credit losses for its financial assets. This method is used for calculating an estimate of losses based primarily on the Company’s historical loss experience. In determining loss rates, the Company evaluates information related to historical losses, adjusted for current conditions and further adjusted for the period of time that the Company can reasonably forecast. The Company has concluded that it can reasonably support a forecast period for the contractual life of its financial assets. Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider the following: the customer or vendor’s creditworthiness, changes in the policy and procedures to establish customer credit limits, changes in the payment terms of receivables, existence and effect of any concentration of credit and changes in the level of such concentrations, and the effects of other external forces such as the current and forecasted direction of the economic and business environment. On January 1, 2020, the Company adopted ASC326, Financial Instruments-Credit Losses, using modified-retrospective transition approach. Following the adoption of this guidance, a cumulative-effect adjustment in accumulated deficit of RMB2,740 was recognized as of January 1, 2020. For the six months period ended June 30, 2020, the Company recorded credit losses of RMB1,183 (US$167).

 

F-17


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

2.                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(e)                   Revenue recognition

 

The Company provides hosting and related services including hosting of customers’ servers and networking equipment, connecting customers’ servers with internet backbones (“Hosting service”), virtual private network services providing encrypted secured connection to public internet (“VPN service”) and other value-added services and public cloud service through strategic partnership with Microsoft.

 

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition (“ASC 605”), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with historic accounting under ASC 605. The impact of adopting the new revenue standard was not material to the consolidated financial statements and there was no adjustment to the opening balance of retained earnings on January 1, 2018.

 

Under ASC 606, an entity recognizes revenue as the Company satisfies a performance obligation when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

 

Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. The Company recognizes revenue based on the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied.

 

The Company is a principal and records revenue on a gross basis when the Company is primarily responsible for fulfilling the service, has discretion in establishing pricing and controls the promised service before transferring that service to customers. Otherwise, the Company records revenue at the net amounts as commissions.

 

The Company’s revenue recognition policies effective on the adoption date of ASC 606 are as follows:

 

F-18


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

2.                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(e)                   Revenue recognition (continued)

 

Hosting services are services that the Company dedicates data center space to house customers’ servers and networking equipment and provides tailored server administration services including operating system support and assistance with updates, server monitoring, server backup and restoration, server security evaluation, firewall services, and disaster recovery. The Company also provides interconnectivity services to connect customers with each other, internet backbones in China and other networks through Border Gateway Protocol, or BGP, network, or single-line, dual-line or multiple-line networks. Hosting services are typically provided to customers for a fixed amount over the contract service period and the related revenues are recognized on a straight-line basis over the term of the contract. For certain contracts where considerations are based on the usage of the Hosting services, the related revenues are recognized based on the consumption at the predetermined rate as the services are rendered throughout the contact term. The Company is a principal and records revenue for Hosting service on a gross basis.

 

VPN services are services that the Company extends customers’ private networks by setting up secure and dedicated connections through the public internet. VPN services are provided to customers for a fixed amount over the contract service period and revenue is recognized on a straight-line basis over the term of the contract. The Company is a principal and records revenue for VPN service on a gross basis.

 

Cloud services allow businesses to run their applications over the internet using the IT infrastructure. Revenue from Cloud services consists of incentive revenue from Microsoft upon completion of certain conditions and a fixed percentage amount based on gross sales price generated from Cloud services provided to end customers. Cloud services are generally provided to end customers for a fixed amount over the contract period and the related revenues are recognized on a straight-line basis over the contract period. For certain contracts where considerations are based on the usage of the cloud resources, the related revenues are recognized based on the consumption at the predetermined rate as the services are rendered throughout the contract term. The Company records revenue for Cloud service on a net basis.

 

For certain arrangements, customers are required to pay the Company before the services are delivered. The Company recognizes a contract liability in the consolidated balance sheets, depending on the relationship between the Company’s performance and the customer’s payment. Contract liabilities are mainly related to fee received for Hosting services to be provided over the contract period, which are presented as deferred revenue on the consolidated balance sheets.

 

Deferred revenue represents the Company’s obligation to transfer the goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. As of December 31, 2019 and June 30, 2020, the Company has deferred revenue amounting up to RMB57,625 and RMB54,327 (US$7,689), respectively. Revenue recognized from opening deferred revenue balance was RMB44,634 (US$6,318) for the six months period ended June 30, 2020.

 

Part of the Company’s Hosting service contains lease and non-lease components. The Company elected to adopt the practical expedient which allows lessors to combine lease and non-lease components and account for them as one component if 1) the timing and pattern of transfer of the lease component and non-lease component is the same; 2) the lease component should be classified as an operating lease if it were accounted for separately. The combined component is accounted for in accordance with the current lease accounting guidance (“ASC 842”) if the lease component is predominant, and in accordance with the ASC 606 if the non-lease component is predominant. In general, the Company has determined that the non-lease component is the predominant component in Hosting service. Therefore, the Company has accounted for the combined component in accordance with ASC 606.

 

The Company does not disclose the value of unsatisfied performance obligations as the Company’s revenue contracts are (i) contracts with an original expected length of one year or less or (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

 

F-19


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

2.                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(f)                      Loss per share

 

In accordance with ASC Topic 260, Earnings per Share (“ASC 260”), basic loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of unrestricted ordinary shares outstanding during the period using the two-class method. Under the two-class method, net loss is allocated between ordinary shares and other participating securities based on their participating rights. The convertible perpetual preferred shares are participating securities. As the participating securities do not share the losses of the Group, the computation of basic earnings per share using two-class method is not applicable when the Company is at a net loss position. Diluted loss per share is calculated by dividing net loss attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Contingently issuable shares, including performance-based share awards and contingent considerations to be settled in shares, are included in the computation of basic earnings per share only when there is no circumstance under which those shares would not be issued. Contingently issuable shares are included in the denominator of the diluted loss per share calculation as of the beginning of the period or as of the inception date of the contingent share arrangement, if later, only when dilutive and when all the necessary conditions have been satisfied as of the reporting period end. For contracts that may be settled in ordinary shares or in cash at the election of the Company, share settlement is presumed, pursuant to which incremental shares relating to the number of shares that would be required to settle the contract are included in the denominator of diluted loss per share calculation if the effect is more dilutive. For the contracts that may be settled in ordinary shares or in cash at the election of the counterparty, the more dilutive option of cash or share settlement is used for the purposes of diluted loss per share calculation, pursuant to which share settlement requires the number of shares that would be required to settle the contract be included in the denominator whereas cash settlement requires an adjustment to be made to the numerator for any changes in income or loss that would result as if the contract had been classified as an asset or a liability for accounting purposes during the period for a contract that is classified as equity for accounting purposes, if the effect is more dilutive. Ordinary equivalent shares consist of the ordinary shares issuable upon the exercise of the share options, using the treasury stock method and shares issuable upon the conversion of the Company’s convertible perpetual preferred shares and convertible notes using the if-converted method. Ordinary share equivalents are excluded from the computation of diluted loss per share if their effects would be anti-dilutive.

 

(g)                   Recent accounting pronouncements

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which is elective, and provides for optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The Company is currently evaluating the impact of reference rate reform and potential impact of adoption of these elective practical expedients on its condensed consolidated financial statements and will consider the impact of adoption during its analysis. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

 

F-20


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

3.                       ACQUISITION OF SUBSIDIARIES

 

Acquisition in 2020

 

Shanghai Shuzhong

 

On June 30, 2020, as part of its business strategy to expand the existing hosting service, the Company through its subsidiary, Shanghai Shilian Technology Co., Ltd. (“SH Shilian”) acquired 100% of the equity interests in Shanghai Shuzhong Investment Management Co., Ltd. (“SH Shuzhong”) which primarily provides internet data center service from a third party selling shareholder, for a total cash consideration of RMB37,457 (US$5,301). The consideration was not paid as of June 30, 2020. The accounting for this acquisition is incomplete because the transaction occurred by the end of the period and therefore, the amounts recognized in the consolidated financial statements are regarded provisional as of June 30, 2020.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:

 

 

 

RMB

 

US$

 

Current assets

 

44,248

 

6,263

 

Other non-current assets

 

1,686

 

239

 

Property and equipment, net

 

318,461

 

45,075

 

Purchased software

 

23

 

3

 

Operating lease right-of-use assets, net

 

81,034

 

11,470

 

Customer contract

 

33,500

 

4,742

 

Deferred tax assets

 

14,077

 

1,992

 

Total assets acquired

 

493,029

 

69,784

 

Other current liabilities

 

(382,543

)

(54,145

)

Operating lease liabilities

 

(45,034

)

(6,375

)

Deferred tax liabilities

 

(33,665

)

(4,765

)

Total liabilities assumed

 

(461,242

)

(65,285

)

Net assets acquired

 

31,787

 

4,499

 

Purchase consideration

 

37,457

 

5,301

 

Goodwill

 

5,670

 

802

 

 

The revenue and net profit since the acquisition date included in the consolidated statement of operations for the six months periods ended June 30, 2020 were nil and nil, respectively.

 

The goodwill, which is not tax deductible, is primarily attributable to synergies expected to be achieved from the acquisition.

 

F-21


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

4.                       ACCOUNTS AND NOTES RECEIVABLE, NET

 

Accounts and notes receivable and the allowance for doubtful debt consisted of the following:

 

 

 

As of

 

 

 

December 31,
2019

 

June 30, 2020

 

 

 

RMB

 

RMB

 

US$

 

Accounts receivable

 

722,840

 

1,024,522

 

145,012

 

Notes receivable

 

2,146

 

1,520

 

215

 

Allowance for doubtful debt

 

(67,828

)

(67,909

)

(9,612

)

 

 

657,158

 

958,133

 

135,615

 

 

As of December 31, 2019 and June 30, 2020, all accounts and notes receivable were due from third party customers. An analysis of the allowance for doubtful debt, considering the adoption of ASC 326 since January 1, 2020, was as follows:

 

 

 

As of

 

 

 

December 31,
2019

 

June 30, 2020

 

 

 

RMB

 

RMB

 

US$

 

Balance at beginning of the year/period

 

70,970

 

67,828

 

9,600

 

Cumulative adjustment for changes in accounting policy

 

 

2,740

 

388

 

Additional provision charged to expense

 

485

 

1,183

 

167

 

Write-off of accounts receivable

 

(3,627

)

(3,842

)

(543

)

Balance at the end of the year/period

 

67,828

 

67,909

 

9,612

 

 

F-22


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

5.                       PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consisted of the following:

 

 

 

As of

 

 

 

 December 31,
2019

 

June 30, 2020

 

 

 

RMB

 

RMB

 

US$

 

Prepaid expenses

 

878,155

 

1,025,092

 

145,092

 

Tax recoverables

 

570,913

 

617,919

 

87,461

 

Staff advances

 

1,866

 

1,119

 

158

 

Interest receivables

 

14,359

 

20,045

 

2,837

 

Deposits

 

17,391

 

7,007

 

992

 

Loans to third parties

 

73,557

 

43,639

 

6,177

 

Others

 

61,908

 

63,035

 

8,921

 

 

 

1,618,149

 

1,777,856

 

251,638

 

 

Prepaid expenses mainly represented the unamortized portion of prepayments made to Microsoft for the cloud computing services, the prepayments to telecommunication operators for bandwidth, data centers or cabinets and the prepayments for office expense.

 

6.                       PROPERTY AND EQUIPMENT, NET

 

Property and equipment, including those held under finance leases, consisted of the following:

 

 

 

As of

 

 

 

December 31,
2019

 

June 30, 2020

 

 

 

RMB

 

RMB

 

US$

 

At cost:

 

 

 

 

 

 

 

Property

 

899,609

 

1,008,555

 

142,752

 

Leasehold improvements

 

1,458,749

 

1,715,084

 

242,754

 

Computer and network equipment

 

3,539,709

 

4,285,238

 

606,536

 

Optical fibers

 

142,723

 

142,723

 

20,201

 

Office equipment

 

22,102

 

29,115

 

4,121

 

Motor vehicles

 

2,308

 

2,668

 

378

 

 

 

6,065,200

 

7,183,383

 

1,016,742

 

Less: accumulated depreciation

 

(2,514,800

)

(2,886,548

)

(408,564

)

 

 

3,550,400

 

4,296.835

 

608,178

 

Construction-in-progress

 

1,893,165

 

2,225,404

 

314,985

 

 

 

5,443,565

 

6,522,239

 

923,163

 

 

F-23


 

21VIANET GROUP, INC.

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Amounts in thousands of RMB and US$, unless otherwise stated)

 

6.                       PROPERTY AND EQUIPMENT, NET (CONTINUED)

 

Depreciation expense was RMB339,231 and RMB381,683 (US$54,023) for the six months periods ended June 30, 2019 and 2020, respectively, and was included in the following captions:

 

 

 

For the six months periods ended June 30,

 

 

 

2019

 

2020

 

 

 

RMB

 

RMB

 

US$

 

Cost of revenues

 

316,603

 

355,001

 

50,247

 

Sales and marketing expenses

 

951

 

1,119

 

158

 

General and administrative expenses

 

12,809

 

14,415