Table of Contents

 

 

 

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 OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the month of November 2013

 

Commission File Number: 000-30666

 


 

NETEASE, INC.

 


 

26/F, SP Tower D
Tsinghua Science Park Building 8
No. 1 Zhongguancun East Road, Haidian District
Beijing 100084, People’s Republic of China
(Address of 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

 

 

 

 



Table of Contents

 

NETEASE, INC.

 

Form 6-K

 

TABLE OF CONTENTS

 

 

 

Page

Signature

 

Page 3

 

 

 

Press Release Regarding Earnings Results for the Third Quarter of 2013, dated November 13, 2013

 

Exhibit 99.1

 

 

 

 

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Table of Contents

 

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.

 

 

NETEASE, INC.

 

 

 

By:

/s/ Onward Choi

 

Name:

Onward Choi

 

Title:

Acting Chief Financial Officer

 

 

Date: November 14, 2013

 

 

3


Exhibit 99.1

 

 

Contact for Media and Investors:

Cassia Curran

NetEase, Inc.

cassia@corp.netease.com

Tel: (+86) 571-8985-2076

 

Brandi Piacente

Investor Relations

brandi@corp.netease.com

Tel: (+1) 212-481-2050

 

NetEase Reports Third Quarter 2013 Unaudited Financial Results

 

(Beijing — November 13, 2013) — NetEase, Inc. (NASDAQ: NTES), one of China’s leading Internet and online game services providers, today announced its unaudited financial results for the third quarter ended September 30, 2013.

 

“We continue to broaden the platforms for our traditional and mobile Internet product and service offerings,” said Mr. William Ding, Chief Executive Officer and Director of NetEase. “During the third quarter we completed key upgrades for two of our most popular games, increased our investment in the mobile Internet business and entered the mobile instant messaging space with the launch of YiChat. These critical advancements support our growth objectives, and for the third quarter we increased our revenues by 23.0% year-over-year, with revenues from our online games and advertising services increasing by 21.0% and 22.9%, respectively.”

 

“Our self-developed traditional and mobile game offerings are resonating well with our audiences. During the third quarter, one of our most popular games, Fantasy Westward Journey II, delivered an excellent performance following the early July launch of its comprehensive upgrade, along with the game’s accompanying pocket mobile version. This pocket mobile version has extended the reach of our game from the PC to mobile platforms, and user feedback continues to be favorable. In addition, the exciting new version we launched for Westward Journey Online II in September -now known as New Westward Journey Online II- was a significant upgrade for this classic game, which is stimulating players’ enthusiasm and demonstrating positive user trends.”

 

“Our newer games are also performing in-line with our expectations. The expansion pack launched in June for Heroes of Tang Dynasty II was well received by players and contributed to our revenue growth for the period.  For our other game titles, we expect heightened interest in the coming periods as we introduced new expansion packs for Ghost II and Kung Fu Master in September and October, respectively, and have expansion packs planned in the fourth quarter for Heroes of Tang Dynasty II, Tianxia III and Legend of Fairy. Our development schedule is also progressing smoothly. User feedback has been encouraging following our initial commercial launch of Heroes of Three Kingdoms in April and Dragon Sword in August. Large-scale promotional activities were launched for those two games in September and November, respectively, and earlier this month, we commercially launched Legend of Tibet, a 2.5D MMORPG. Before the end of year, we also expect to introduce

 

1



 

several high quality mobile games. For 2014, we currently plan to release our first person shooter game, Crisis 2015, in the first half of 2014 and we are preparing to introduce another new game: Revelation, a 3-D epic fantasy MMORPG that we have been developing for the past three years. Revelation features exceptional computer-generated graphic effects using cutting-edge technology and integrates traditional MMO styles with enhanced action elements to provide young players with cool and fast-paced fighting experiences.”

 

“The upcoming open beta test in mainland China of Blizzard Entertainment’s highly anticipated Hearthstone™: Heroes of Warcraft™ will become another important milestone. This new free-to-play online collectible card game featuring legendary heroes, spells and minions from the Warcraft universe, is simple to play yet highly engaging, and we look forward to providing our players with this great gaming experience.”

 

“Turning to our portal, our advertising services revenue increased both sequentially and year-over-year with the largest revenue contributions coming from the automobile, Internet services and fast moving consumer goods sectors. We now have a number of fast growing mobile applications, which provide an important platform for delivery of our value-added services and advertisements. YiChat has been one of our most exciting new additions, and we are extremely pleased to have partnered with China Telecom to launch this instant messaging application. Attracting considerable attention from the Chinese community, downloads for YiChat exceeded 1 million on the first day of its launch in August, and it had reached more than 30 million users by the end of October. YiChat significantly advances our mobile Internet strategy, and we continue to grow our community of loyal users across our robust portals. As of September 30, 2013, we had over 590 million e-mail users and 160 million installations of our leading Mobile News application.”

 

“We see a great opportunity to integrate and expand our traditional online games and services with complementary mobile Internet offerings that broaden our customer base. We will continue to develop our mobile social networking platform and introduce new products and games to support this strategy. As a pioneer in China’s Internet market, we are dedicated to providing our community with competitive products and services that honor our commitment to quality, while simultaneously creating additional value for our shareholder partners,” Mr. Ding concluded.

 

Third Quarter 2013 Financial Results

 

Revenues

 

Total revenues for the third quarter of 2013 were RMB2,514.3 million (US$410.8 million), compared to RMB2,413.8 million and RMB2,044.9 million for the preceding quarter and the third quarter of 2012, respectively.

 

Revenues from online games were RMB2,105.5 million (US$344.0 million) for the third quarter of 2013, compared to RMB2,066.5 million and RMB1,739.9 million for the preceding quarter and the third quarter of 2012, respectively.

 

Revenues from advertising services were RMB298.8 million (US$48.8 million) for the third quarter of 2013, compared to RMB272.2 million and RMB243.0 million for the preceding quarter and the third quarter of 2012, respectively.

 

2



 

Revenues from e-mail, wireless value-added services and others (“E-mail, WVAS and others”) were RMB110.1 million (US$18.0 million) for the third quarter of 2013, compared to RMB75.1 million and RMB61.9 million for the preceding quarter and the third quarter of 2012, respectively.

 

Sales Taxes

 

Total sales taxes for the third quarter of 2013 were RMB157.7 million (US$25.8 million), compared to RMB149.3 million and RMB42.9 million for the preceding quarter and the third quarter of 2012, respectively. The year-over-year increase in sales taxes was mainly due to a change in the tax rules in China, which resulted in the Company’s online game revenues gradually becoming subject to value-added tax instead of business tax since 2013. This change in tax rules did not have a significant impact on gross profit from the Company’s online game services business segment as the increase in value-added tax was substantially offset by a reduction in business taxes on intra-group revenues, which were previously recorded in cost of revenues. As a result, the year-over-year increase in gross profit margin was primarily attributable to lower net revenue due to the increased value-added tax in sales taxes.

 

Gross Profit

 

Gross profit for the third quarter of 2013 was RMB1,746.8 million (US$285.4 million), compared to RMB1,697.6 million and RMB1,361.9 million for the preceding quarter and the third quarter of 2012, respectively.

 

The year-over-year increase in gross profit was primarily attributable to increased gross profit from NetEase’s online game and advertising businesses.

 

The year-over-year increase in online game revenues was primarily driven by increased revenues from the Company’s self-developed games, primarily Fantasy Westward Journey II, Kung Fu Master, Heroes of Tang Dynasty II and New Westward Journey Online II, which was partially offset by a decline in revenue from World of Warcraft®, a game licensed from Blizzard Entertainment.

 

The year-over-year increase in advertising services revenues was primarily due to a rise in demand, mainly from sectors such as automobile, Internet services and real estate.

 

The quarter-over-quarter increase in gross profit was primarily attributable to increased gross profit from NetEase’s advertising services due to the reason mentioned above, and increased revenues from the one-off sale of certain game accessories, such as a limited edition pack for NetEase’s New Westward Journey Online II, which is included in the E-mail, WVAS and others business.

 

Gross Profit (Loss) Margin

 

Gross profit margin for the online game business for the third quarter of 2013 was 79.7%, compared to 80.9% and 74.2% for the preceding quarter and the third quarter of 2012, respectively. The year-over-year increase in gross profit margin was mainly due to the changes in tax rules as mentioned above.

 

Gross profit margin for the advertising business for the third quarter of 2013 was 59.4%, compared to 55.5% and 36.2% for the preceding quarter and the third quarter of 2012, respectively. The increase in gross profit margin reflects the Company’s ability to effectively scale its advertising business.

 

3



 

Gross profit margin for the E-mail, WVAS and others business for the third quarter of 2013 was 4.1%, compared to gross loss margin of 21.0% and gross profit margin of 6.0% for the preceding quarter and the third quarter of 2012, respectively. The increase in gross profit margin was mainly due to increased revenue contribution from sales of higher margin game accessories.

 

Operating Expenses

 

Total operating expenses for the third quarter of 2013 were RMB635.2 million (US$103.8 million), compared to RMB626.0 million and RMB537.5 million for the preceding quarter and the third quarter of 2012, respectively. The year-over-year increase in operating expenses was mainly due to increased staff related cost resulting from an increase in the number of employees and average compensation, as well as higher research and development investments. The quarter-over-quarter increase in operating expenses was mainly due to increased general and administrative expenses and research and development expenses, which were partially offset by decreased selling and marketing expenditures for licensed games in this quarter.

 

Income Taxes

 

The Company recorded a net income tax charge of RMB206.5 million (US$33.7 million) for the third quarter of 2013, compared to RMB131.8 million and RMB194.8 million for the preceding quarter and the third quarter of 2012, respectively. The effective tax rate for the third quarter of 2013 was 16.5%, compared to 10.8% and 19.9% for the preceding quarter and the third quarter of 2012, respectively. The quarter-over-quarter increase in effective tax rate was due to the Company recognizing RMB47.1 million in tax credits related to certain incentives for a deduction in research and development expenses agreed on by tax authorities during the annual tax filing of the Company’s PRC entities in the preceding quarter. The year-over-year decrease in effective tax rate was due to the occurrence of a one-time accrued withholding tax of RMB40.0 million associated with the offshore remittance of cash from China in connection with the declaration of a special cash dividend in the third quarter of 2012.

 

The Company’s various principal subsidiaries renewed their qualifications as High and New Technology Enterprises in 2011, and enjoy the preferential enterprise income tax rate of 15% from 2011 to 2013, subject to annual review by the relevant tax authorities in China.

 

Net Income after tax

 

Net profit for the third quarter of 2013 totaled RMB1.0 billion (US$171.3 million), compared to RMB1.1 billion and RMB811.9 million for the preceding quarter and the third quarter of 2012, respectively.

 

During the third quarter of 2013, the Company reported a net foreign exchange gain of RMB5.9 million (US$1.0 million), compared to RMB5.6 million and RMB23.7 million for the preceding quarter and the third quarter of 2012, respectively. The quarter-over-quarter and year-over-year changes in foreign exchange gains were mainly due to the unrealized exchange gains arising from the Company’s foreign currency denominated bank deposit and short-term loan balances as of September 30, 2013 as the exchange rate of the U.S. dollar against the RMB fluctuated over the periods.

 

NetEase reported basic and diluted earnings per ADS of US$1.32 and US$1.31, respectively, for the third quarter of 2013. The Company reported basic and diluted earnings per ADS of US$1.38 and US$1.37,

 

4



 

respectively, for the preceding quarter, and reported basic and diluted earnings per ADS of US$1.01 each for the third quarter of 2012.

 

Other Information

 

As of September 30, 2013, the Company’s total cash and time deposits balance was RMB17.2 billion (US$2.8 billion), compared to RMB15.2 billion as of December 31, 2012. Cash flow generated from operating activities was RMB1.0 billion (US$165.9 million) for the third quarter of 2013, compared to RMB1.0 billion and RMB670.1 million for the preceding quarter and the third quarter of 2012, respectively.

 

Share Repurchase Program

 

In November 2012, the Company announced that its board of directors approved a new share repurchase program of up to US$100.0 million. As of September 30, 2013, the Company had cumulatively purchased approximately 2.02 million ADSs in open market purchases under this program for a total consideration of approximately US$83.0 million. The share repurchase program will expire on November 20, 2013.

 

** The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader.  Translations of amounts from RMB into United States dollars for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB6.1200 on September 30, 2013 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 30, 2013, or at any other certain date. The percentages stated are calculated based on RMB.

 

Conference Call

 

NetEase’s management team will host a teleconference call with simultaneous webcast at 8:00 p.m. Eastern Time on Wednesday, November 13, 2013 (Beijing/Hong Kong Time: 9:00 a.m., Thursday, November 14, 2013). NetEase’s management will be on the call to discuss the quarterly results and answer questions.

 

Interested parties may participate in the conference call by dialing 1-877-941-4774 (international: 1-480-629-9760), 10-15 minutes prior to the initiation of the call.  A replay of the call will be available by dialing 1-800-406-7325 (international 1-303-590-3030), and entering passcode 4647045#. The replay will be available through November 28, 2013.

 

This call will be webcast live and the replay will be available for 12 months.  Both will be available on NetEase’s Investor Relations website at http://ir.netease.com.

 

About NetEase, Inc.

 

NetEase, Inc. (NASDAQ: NTES) is a leading Internet technology company in China.  Dedicated to providing online services centered around content, community, communication and commerce, NetEase develops and operates some of China’s most popular online games, e-mail services, advertising services and web portals.  In partnership with Blizzard Entertainment, NetEase also operates one of the most popular international online games in China, World of Warcraft®. For more information, please visit: http://ir.netease.com/.

 

*      *      *

 

5



 

Forward Looking Statements

 

This press release contains statements of a forward-looking nature. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online game market will not continue to grow or that NetEase will not be able to maintain its leading position in that market, which could occur if, for example, its new online games such as Kung Fu Master, Heroes of Three Kingdoms, Dragon Sword, Legend of Tibet and Crisis 2015 or expansion packs and other improvements to its existing games, including its current and planned expansion packs for Fantasy Westward Journey II, New Westward Journey Online II and other games, do not become as popular as management anticipates; the ability of NetEase to successfully expand its mobile Internet offerings; the ability of NetEase to effectively market its games and other services and achieve a positive return on its marketing expenditures; the risk that Shanghai EaseNet will not be able to continue operating World of Warcraft, StarCraft® II or other games licensed by it for a period of time or permanently due to possible governmental actions or the risk that such games will not be popular with game players in China; the risk that changes in Chinese government regulation of the online game market may limit future growth of NetEase’s revenues or cause revenues to decline; competition in the online advertising business and the risk that investments by NetEase in its content and services may not increase the appeal of the NetEase websites among Internet users or result in increased advertising revenues; the risk that NetEase may not be able to continuously develop new and creative online services, including its ability to maintain and enhance the popularity of its e-mail, mobile and micro-blogging services and develop attractive mobile games; the risk that NetEase will not be able to control its expenses in future periods; competition in NetEase’s existing and potential markets; governmental uncertainties (including possible changes in the effective tax rates applicable to NetEase and its subsidiaries and affiliates and the ability of NetEase to receive and maintain approvals of the preferential tax treatments and general competition and price pressures in the marketplace); the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase’s business and financial results; and other risks outlined in NetEase’s filings with the Securities and Exchange Commission. NetEase does not undertake any obligation to update this forward-looking information, except as required under the applicable law.

 

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NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)

 

 

 

December 31,

 

September 30,

 

September 30,

 

 

 

2012

 

2013

 

2013

 

 

 

RMB

 

RMB

 

USD (Note 1)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

1,590,769

 

917,302

 

149,886

 

Time deposits

 

13,098,661

 

15,851,527

 

2,590,119

 

Restricted cash

 

570,506

 

1,983,879

 

324,163

 

Accounts receivable, net

 

269,485

 

399,718

 

65,313

 

Prepayments and other current assets

 

1,121,784

 

1,112,194

 

181,731

 

Short-term investments

 

1,073,539

 

958,603

 

156,634

 

Deferred tax assets

 

143,929

 

154,997

 

25,326

 

Total current assets

 

17,868,673

 

21,378,220

 

3,493,172

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

Property, equipment and software, net

 

815,026

 

814,110

 

133,025

 

Land use right, net

 

11,529

 

11,335

 

1,852

 

Deferred tax assets

 

2,215

 

3,383

 

553

 

Time deposits

 

490,000

 

450,000

 

73,529

 

Other long-term assets

 

90,513

 

329,286

 

53,805

 

Total non-current assets

 

1,409,283

 

1,608,114

 

262,764

 

Total assets

 

19,277,956

 

22,986,334

 

3,755,936

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

157,764

 

163,445

 

26,707

 

Salary and welfare payables

 

289,848

 

222,715

 

36,391

 

Dividend payable

 

814,934

 

 

 

Taxes payable

 

389,465

 

336,712

 

55,018

 

Short-term loan

 

 

983,680

 

160,732

 

Deferred revenue

 

1,160,018

 

1,319,884

 

215,667

 

Accrued liabilities and other payables

 

764,473

 

860,773

 

140,649

 

Deferred tax liabilities

 

 

94,299

 

15,408

 

Total current liabilities

 

3,576,502

 

3,981,508

 

650,572

 

 

 

 

 

 

 

 

 

Long-term payable:

 

 

 

 

 

 

 

Other long-term payable

 

99,968

 

116,242

 

18,994

 

Total liabilities

 

3,676,470

 

4,097,750

 

669,566

 

 

 

 

 

 

 

 

 

Total NetEase, Inc.’s equity

 

15,680,605

 

18,974,716

 

3,100,444

 

Noncontrolling interests

 

(79,119

)

(86,132

)

(14,074

)

Total shareholders’ equity

 

15,601,486

 

18,888,584

 

3,086,370

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

19,277,956

 

22,986,334

 

3,755,936

 

 

The accompanying notes are an integral part of this press release.

 

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NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(RMB and USD in thousands, except per share data)

 

 

 

Quarter Ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2012

 

2013

 

2013

 

2013

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,739,922

 

2,066,540

 

2,105,451

 

344,028

 

Advertising services

 

243,027

 

272,236

 

298,783

 

48,821

 

E-mail, WVAS and others

 

61,916

 

75,068

 

110,080

 

17,987

 

Total revenues

 

2,044,865

 

2,413,844

 

2,514,314

 

410,836

 

Sales taxes

 

(42,901

)

(149,319

)

(157,675

)

(25,764

)

Total net revenues

 

2,001,964

 

2,264,525

 

2,356,639

 

385,072

 

 

 

 

 

 

 

 

 

 

 

Total cost of revenues

 

(640,049

)

(566,912

)

(609,884

)

(99,654

)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

1,361,915

 

1,697,613

 

1,746,755

 

285,418

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

(259,947

)

(314,761

)

(283,026

)

(46,246

)

General and administrative expenses

 

(75,851

)

(87,639

)

(94,795

)

(15,489

)

Research and development expenses

 

(201,661

)

(223,584

)

(257,345

)

(42,050

)

Total operating expenses

 

(537,459

)

(625,984

)

(635,166

)

(103,785

)

 

 

 

 

 

 

 

 

 

 

Operating profit

 

824,456

 

1,071,629

 

1,111,589

 

181,633

 

Other income:

 

 

 

 

 

 

 

 

 

Investment income

 

9,353

 

10,806

 

9,041

 

1,477

 

Interest income

 

115,459

 

126,067

 

123,567

 

20,191

 

Exchange gains

 

23,659

 

5,630

 

5,900

 

964

 

Other, net

 

5,087

 

3,103

 

1,025

 

167

 

 

 

 

 

 

 

 

 

 

 

Net income before tax

 

978,014

 

1,217,235

 

1,251,122

 

204,432

 

Income tax

 

(194,797

)

(131,808

)

(206,503

)

(33,742

)

 

 

 

 

 

 

 

 

 

 

Net income after tax

 

783,217

 

1,085,427

 

1,044,619

 

170,690

 

Net loss attributable to noncontrolling interests

 

28,718

 

9,675

 

3,675

 

600

 

Net income attributable to the Company’s shareholders

 

811,935

 

1,095,102

 

1,048,294

 

171,290

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

783,217

 

1,085,427

 

1,044,619

 

170,690

 

Comprehensive loss attributable to noncontrolling interests

 

28,718

 

9,675

 

3,675

 

600

 

Comprehensive income attributable to the Company’s shareholders

 

811,935

 

1,095,102

 

1,048,294

 

171,290

 

 

 

 

 

 

 

 

 

 

 

Earnings per share, basic

 

0.25

 

0.34

 

0.32

 

0.05

 

Earnings per ADS, basic

 

6.17

 

8.43

 

8.06

 

1.32

 

Earnings per share, diluted

 

0.25

 

0.34

 

0.32

 

0.05

 

Earnings per ADS, diluted

 

6.17

 

8.41

 

8.04

 

1.31

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares outstanding, basic

 

3,287,370

 

3,249,077

 

3,250,078

 

3,250,078

 

Weighted average number of ADS outstanding, basic

 

131,495

 

129,963

 

130,003

 

130,003

 

Weighted average number of ordinary shares outstanding, diluted

 

3,292,462

 

3,255,244

 

3,260,350

 

3,260,350

 

Weighted average number of ADS outstanding, diluted

 

131,698

 

130,210

 

130,414

 

130,414

 

 

The accompanying notes are an integral part of this press release.

 

8



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(RMB and USD in thousands)

 

 

 

Quarter Ended

 

 

 

September 30,

 

March 31,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2012

 

2013

 

2013

 

2013

 

2013

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

783,217

 

1,068,920

 

1,085,427

 

1,044,619

 

170,690

 

Adjustments to reconcile net profit to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

52,310

 

38,289

 

39,806

 

39,890

 

6,518

 

Share-based compensation cost

 

47,969

 

58,706

 

79,389

 

83,219

 

13,598

 

(Reversal of) allowance for provision for doubtful debts

 

(593

)

(190

)

947

 

2,616

 

427

 

Loss (gain) on disposal of property, equipment and software

 

90

 

(220

)

1

 

(268

)

(44

)

Unrealized exchange (gains) loss

 

(27,330

)

7,763

 

(4,959

)

(8,308

)

(1,358

)

Deferred income taxes

 

7,894

 

261,550

 

10,525

 

(50,011

)

(8,172

)

Net equity share of (gain) loss from associated companies

 

(389

)

339

 

(430

)

1,938

 

317

 

Amortization of premium (discount) of short-term investments

 

18,739

 

(3,280

)

(2,425

)

641

 

105

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(31,834

)

72,418

 

(131,097

)

(74,931

)

(12,244

)

Prepayments and other current assets

 

(253,134

)

(105,062

)

65,962

 

50,116

 

8,189

 

Accounts payable

 

26,755

 

(26,612

)

40,378

 

1,626

 

266

 

Salary and welfare payables

 

(29,563

)

(60,697

)

39,845

 

(46,280

)

(7,562

)

Taxes payable

 

18,096

 

(4,545

)

(58,637

)

(129,572

)

(21,172

)

Deferred revenue

 

17,241

 

51,554

 

9,422

 

98,890

 

16,158

 

Accrued liabilities and other payables

 

40,631

 

188,959

 

(124,342

)

1,208

 

197

 

Net cash provided by operating activities

 

670,099

 

1,547,892

 

1,049,812

 

1,015,393

 

165,913

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, equipment and software

 

(65,430

)

(35,578

)

(33,883

)

(40,437

)

(6,607

)

Proceeds from sale of property, equipment and software

 

546

 

696

 

 

276

 

45

 

Purchase of other intangible assets

 

 

 

(650

)

(250

)

(41

)

Net change in short-term investments with terms of three months or less

 

150,000

 

20,000

 

(650,000

)

330,000

 

53,922

 

Purchase of short-term investments

 

(70,845

)

(20,000

)

(80,000

)

 

 

Proceeds from maturities of short-term investments

 

330,000

 

150,000

 

220,000

 

150,000

 

24,510

 

Investment in an associated company

 

(7,915

)

 

 

(200,000

)

(32,680

)

Transfer from (to) restricted cash

 

51,899

 

(1,432,315

)

(8,276

)

27,218

 

4,447

 

Placement/rollover of matured time deposits

 

(4,626,840

)

(4,908,848

)

(4,668,529

)

(7,803,312

)

(1,275,051

)

Proceeds from maturities of time deposits

 

3,686,192

 

4,817,487

 

3,734,349

 

6,096,194

 

996,110

 

Net change in other assets

 

(11,094

)

2,613

 

(5,508

)

(36,674

)

(5,992

)

Net cash used in investing activities

 

(563,487

)

(1,405,945

)

(1,492,497

)

(1,476,985

)

(241,337

)

 

9



 

NETEASE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(RMB and USD in thousands)

 

 

 

Quarter Ended

 

 

 

September 30,

 

March 31,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2012

 

2013

 

2013

 

2013

 

2013

 

 

 

RMB

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds of short-term bank loan

 

 

1,005,680

 

 

 

 

Proceeds from employees exercising stock options

 

 

 

1,961

 

513

 

84

 

Capital contribution from non-controlling interests

 

 

 

 

916

 

150

 

Purchase of shares

 

 

(106,809

)

 

 

 

Dividends paid to shareholders

 

 

(815,413

)

 

 

 

Net cash provided by financing activities

 

 

83,458

 

1,961

 

1,429

 

234

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash held in foreign currencies

 

2,200

 

(11,158

)

(812

)

13,985

 

2,285

 

Net increase (decrease) in cash and cash equivalents

 

108,812

 

214,247

 

(441,536

)

(446,178

)

(72,905

)

Cash and cash equivalents, beginning of the period

 

1,075,734

 

1,590,769

 

1,805,016

 

1,363,480

 

222,791

 

Cash and cash equivalents, end of the period

 

1,184,546

 

1,805,016

 

1,363,480

 

917,302

 

149,886

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid (received) for income tax, net

 

148,758

 

192,134

 

176,728

 

(121,033

)

(19,777

)

Withholding income tax paid associated with the repatriation of cash for a special dividend

 

 

5,000

 

 

196,201

 

32,059

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

Fixed asset purchases financed by accounts payable and accrued liabilities

 

14,096

 

13,894

 

18,410

 

15,299

 

2,500

 

 

The accompanying notes are an integral part of this press release.

 

10



 

NETEASE, INC.

UNAUDITED SEGMENT INFORMATION

(RMB and USD in thousands, except percentages)

 

 

 

Quarter Ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2012

 

2013

 

2013

 

2013

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,739,922

 

2,066,540

 

2,105,451

 

344,028

 

Advertising services

 

243,027

 

272,236

 

298,783

 

48,821

 

E-mail, WVAS and others

 

61,916

 

75,068

 

110,080

 

17,987

 

Total revenues

 

2,044,865

 

2,413,844

 

2,514,314

 

410,836

 

 

 

 

 

 

 

 

 

 

 

Sales taxes:

 

 

 

 

 

 

 

 

 

Online game services

 

(17,053

)

(117,479

)

(119,994

)

(19,607

)

Advertising services

 

(24,562

)

(27,405

)

(29,421

)

(4,807

)

E-mail, WVAS and others

 

(1,286

)

(4,435

)

(8,260

)

(1,350

)

Total sales taxes

 

(42,901

)

(149,319

)

(157,675

)

(25,764

)

 

 

 

 

 

 

 

 

 

 

Net revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

1,722,869

 

1,949,061

 

1,985,457

 

324,421

 

Advertising services

 

218,465

 

244,831

 

269,362

 

44,014

 

E-mail, WVAS and others

 

60,630

 

70,633

 

101,820

 

16,637

 

Total net revenues

 

2,001,964

 

2,264,525

 

2,356,639

 

385,072

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

Online game services

 

(443,789

)

(372,543

)

(402,732

)

(65,806

)

Advertising services

 

(139,296

)

(108,892

)

(109,466

)

(17,887

)

E-mail, WVAS and others

 

(56,964

)

(85,477

)

(97,686

)

(15,961

)

Total cost of revenues

 

(640,049

)

(566,912

)

(609,884

)

(99,654

)

 

 

 

 

 

 

 

 

 

 

Gross profit (loss):

 

 

 

 

 

 

 

 

 

Online game services

 

1,279,080

 

1,576,518

 

1,582,725

 

258,615

 

Advertising services

 

79,169

 

135,939

 

159,896

 

26,127

 

E-mail, WVAS and others

 

3,666

 

(14,844

)

4,134

 

676

 

Total gross profit

 

1,361,915

 

1,697,613

 

1,746,755

 

285,418

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss) margin:

 

 

 

 

 

 

 

 

 

Online game services

 

74.2

%

80.9

%

79.7

%

79.7

%

Advertising services

 

36.2

%

55.5

%

59.4

%

59.4

%

E-mail, WVAS and others

 

6.0

%

(21.0

)%

4.1

%

4.1

%

 

The accompanying notes are an integral part of this press release.

 

11



 

NETEASE, INC.

NOTES TO UNAUDITED FINANCIAL INFORMATION

 

Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB6.1200 on the last trading day of September 2013 (September 30, 2013) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board.

 

Note 2:  Share-based compensation cost reported in the Company’s unaudited condensed consolidated statements of comprehensive income is set out as follows in RMB and USD (in thousands):

 

 

 

Quarter Ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

 

 

2012

 

2013

 

2013

 

2013

 

 

 

RMB

 

RMB

 

RMB

 

USD (Note 1)

 

Share-based compensation cost included in:

 

 

 

 

 

 

 

 

 

Cost of revenue

 

25,063

 

42,020

 

46,098

 

7,532

 

Operating expenses

 

 

 

 

 

 

 

 

 

- Selling and marketing expenses

 

2,933

 

4,432

 

4,759

 

778

 

- General and administrative expenses

 

7,830

 

12,358

 

13,144

 

2,148

 

- Research and development expenses

 

12,143

 

20,579

 

19,218

 

3,140

 

 

12