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Exhibit 99.2
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2021 |
SEA LIMITED
INDEX TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Page | |
Unaudited Interim Condensed Consolidated Financial Statements | |
Unaudited Interim Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2021 | 1 – 4 |
Unaudited Interim Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2020 and 2021 | 5 – 6 |
Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss for the Six Months Ended June 30, 2020 and 2021 | 7 |
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2021 | 8 – 9 |
Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 2020 and 2021 | 10 – 12 |
Notes to the Unaudited Interim Condensed Consolidated Financial Statements | 13 – 41 |
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts expressed in thousands of US dollars (“$”)) |
As of December 31, | As of June 30, | |||||||||||
Note | 2020 | 2021 | ||||||||||
$_ | $_ | |||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 6,166,880 | 4,645,383 | ||||||||||
Restricted cash | 859,192 | 1,328,060 | ||||||||||
Accounts receivable, net of allowance for credit losses of $7,978 and $4,971, as of December 31, 2020 and June 30, 2021 respectively | 362,999 | 382,662 | ||||||||||
Prepaid expenses and other assets | 1,054,229 | 1,202,889 | ||||||||||
Loans receivable, net of allowance for credit losses of $20,872 and $58,832, as of December 31, 2020 and June 30, 2021 respectively | 4 | 285,937 | 762,485 | |||||||||
Inventories, net | 64,219 | 99,477 | ||||||||||
Short-term investments | 5 | 126,099 | 962,141 | |||||||||
Amounts due from related parties | 19,449 | 14,001 | ||||||||||
Total current assets | 8,939,004 | 9,397,098 | ||||||||||
Non-current assets | ||||||||||||
Property and equipment, net | 386,401 | 442,122 | ||||||||||
Operating lease right-of-use assets, net | 234,555 | 388,073 | ||||||||||
Intangible assets, net | 39,773 | 42,137 | ||||||||||
Long-term investments | 5 | 190,482 | 286,372 | |||||||||
Prepaid expenses and other assets | 204,804 | 301,104 | ||||||||||
Loans receivable, net of allowance for credit losses of $19,612 and $15,058, as of December 31, 2020 and June 30, 2021 respectively | 4 | 117,149 | 45,488 | |||||||||
Restricted cash | 27,321 | 29,457 | ||||||||||
Deferred tax assets | 99,904 | 114,862 | ||||||||||
Goodwill | 3 | 216,278 | 476,334 | |||||||||
Total non-current assets | 1,516,667 | 2,125,949 | ||||||||||
Total assets | 10,455,671 | 11,523,047 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
1
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Amounts expressed in thousands of US dollars (“$”)) |
As of December 31, | As of June 30, | |||||||||||
Note | 2020 | 2021 | ||||||||||
$_ | $_ | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable (including accounts payable of the Consolidated VIEs without recourse to the primary beneficiaries of $19,290 and $12,821 as of December 31, 2020 and June 30, 2021, respectively) | 121,637 | 179,551 | ||||||||||
Accrued expenses and other payables (including accrued expenses and other payables of the Consolidated VIEs without recourse to the primary beneficiaries of $107,512 and $127,510 as of December 31, 2020 and June 30, 2021, respectively) | 2,033,461 | 2,670,816 | ||||||||||
Advances from customers (including advances from customers of the Consolidated VIEs without recourse to the primary beneficiaries of $11,014 and $16,652 as of December 31, 2020 and June 30, 2021, respectively) | 161,379 | 206,383 | ||||||||||
Amounts due to related parties (including amounts due to related parties of the Consolidated VIEs without recourse to the primary beneficiaries of $2,347 and $3,805 as of December 31, 2020 and June 30, 2021, respectively) | 42,613 | 60,017 | ||||||||||
Operating lease liabilities (including operating lease liabilities of the Consolidated VIEs without recourse to the primary beneficiaries of $10,122 and $6,543 as of December 31, 2020 and June 30, 2021, respectively) | 74,506 | 113,544 | ||||||||||
Deferred revenue (including deferred revenue of the Consolidated VIEs without recourse to the primary beneficiaries of $212,377 and $204,926 as of December 31, 2020 and June 30, 2021, respectively) | 2,150,165 | 2,538,838 | ||||||||||
Income tax payable (including income tax payable of the Consolidated VIEs without recourse to the primary beneficiaries of $566 and $1,790 as of December 31, 2020 and June 30, 2021, respectively) | 52,306 | 114,448 | ||||||||||
Total current liabilities | 4,636,067 | 5,883,597 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
2
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Amounts expressed in thousands of US dollars (“$”)) |
As of December 31, | As of June 30, | |||||||||||
Note | 2020 | 2021 | ||||||||||
$_ | $_ | |||||||||||
Non-current liabilities | ||||||||||||
Accrued expenses and other payables (including accrued expenses and other payables of the Consolidated VIEs without recourse to the primary beneficiaries of $1,907 and $1,738 as of December 31, 2020 and June 30, 2021, respectively) | 36,159 | 61,036 | ||||||||||
Operating lease liabilities (including operating lease liabilities of the Consolidated VIEs without recourse to the primary beneficiaries of $16,916 and $6,642 as of December 31, 2020 and June 30, 2021, respectively) | 177,870 | 299,476 | ||||||||||
Deferred revenue (including deferred revenue of the Consolidated VIEs without recourse to the primary beneficiaries of $55,200 and $70,953 as of December 31, 2020 and June 30, 2021, respectively) | 343,297 | 396,138 | ||||||||||
Convertible notes (including convertible notes of the Consolidated VIEs without recourse to the primary beneficiaries of nil and nil as of December 31, 2020 and June 30, 2021, respectively) | 6 | 1,840,406 | 1,282,496 | |||||||||
Deferred tax liabilities (including deferred tax liabilities of the Consolidated VIEs without recourse to the primary beneficiaries of nil and nil as of December 31, 2020 and June 30, 2021, respectively) | 1,526 | 1,272 | ||||||||||
Unrecognized tax benefits (including unrecognized tax benefits of the Consolidated VIEs without recourse to the primary beneficiaries of $107 and $107 as of December 31, 2020 and June 30, 2021, respectively) | 107 | 107 | ||||||||||
Total non-current liabilities | 2,399,365 | 2,040,525 | ||||||||||
Total liabilities | 7,035,432 | 7,924,122 | ||||||||||
Commitments and contingencies | 13 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Amounts expressed in thousands of US dollars (“$”)) |
As of December 31, | As of June 30, | |||||||||
Note | 2020 | 2021 | ||||||||
$ | $ | |||||||||
Shareholders’ equity | ||||||||||
Class A Ordinary shares (Par value of US$0.0005 per share; Authorized: 14,800,000,000 and 14,800,000,000 shares as of December 31, 2020 and June 30, 2021 respectively; Issued and outstanding: 359,755,767 and 382,489,822 shares as of December 31, 2020 and June 30, 2021, respectively) | 179 | 190 | ||||||||
Class B Ordinary shares (Par value of US$0.0005 per share; Authorized: 200,000,000 and 200,000,000 shares as of December 31, 2020 and June 30, 2021, respectively; Issued and outstanding: 152,175,703 and 152,175,703 shares as of December 31, 2020 and June 30, 2021, respectively) | 76 | 76 | ||||||||
Additional paid-in capital | 8,526,571 | 9,587,617 | ||||||||
Accumulated other comprehensive income (loss) | 4,681 | (22,989 | ) | |||||||
Statutory reserves | 2,363 | 1,766 | ||||||||
Accumulated deficit | (5,150,958 | ) | (6,006,493 | ) | ||||||
Total Sea Limited shareholders’ equity | 3,382,912 | 3,560,167 | ||||||||
Non-controlling interests | 37,327 | 38,758 | ||||||||
Total shareholders’ equity | 3,420,239 | 3,598,925 | ||||||||
Total liabilities and shareholders' equity | 10,455,671 | 11,523,047 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts expressed in thousands of US dollars (“$”)) |
For the Six Months ended June 30, | ||||||||||
Note | 2020 | 2021 | ||||||||
$_ | $_ | |||||||||
Revenue | ||||||||||
Service revenue | ||||||||||
Digital entertainment | 753,629 | 1,805,602 | ||||||||
E-commerce and other services | 631,264 | 1,772,040 | ||||||||
Sales of goods | 212,061 | 466,550 | ||||||||
Total revenue | 1,596,954 | 4,044,192 | ||||||||
Cost of revenue | ||||||||||
Cost of service | ||||||||||
Digital entertainment | (299,231 | ) | (540,936 | ) | ||||||
E-commerce and other services | (673,815 | ) | (1,491,286 | ) | ||||||
Cost of goods sold | (216,282 | ) | (435,667 | ) | ||||||
Total cost of revenue | (1,189,328 | ) | (2,467,889 | ) | ||||||
Gross profit | 407,626 | 1,576,303 | ||||||||
Operating income (expenses) | ||||||||||
Other operating income | 57,925 | 147,095 | ||||||||
Sales and marketing expenses | (694,665 | ) | (1,600,284 | ) | ||||||
General and administrative expenses | (271,480 | ) | (491,850 | ) | ||||||
Research and development expenses | (139,933 | ) | (313,693 | ) | ||||||
Total operating expenses | (1,048,153 | ) | (2,258,732 | ) | ||||||
Operating loss | (640,527 | ) | (682,429 | ) | ||||||
Interest income | 15,206 | 14,969 | ||||||||
Interest expense | (67,927 | ) | (49,606 | ) | ||||||
Investment gain (loss), net | 58,968 | (19,770 | ) | |||||||
Changes in fair value of convertible notes | (87 | ) | – | |||||||
Foreign exchange gain | 12,687 | 6,094 | ||||||||
Loss before income tax and share of results of equity investees | (621,680 | ) | (730,742 | ) | ||||||
Income tax expense | 8 | (51,058 | ) | (126,216 | ) | |||||
Share of results of equity investees | (1,588 | ) | 1,198 | |||||||
Net loss | (674,326 | ) | (855,760 | ) | ||||||
Net profit attributable to non-controlling interests | (148 | ) | (372 | ) | ||||||
Net loss attributable to Sea Limited’s ordinary shareholders | (674,474 | ) | (856,132 | ) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
5
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (continued) (Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data) |
For the Six Months ended June 30, | ||||||||||||
Note | 2020 | 2021 | ||||||||||
$_ | $_ | |||||||||||
Loss per share: | ||||||||||||
Basic and diluted | 9 | (1.45 | ) | (1.65 | ) | |||||||
Weighted average shares used in loss per share computation: | ||||||||||||
Basic and diluted | 464,344,956 | 519,037,660 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
6
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Amounts expressed in thousands of US dollars (“$”)) |
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
Net loss | (674,326 | ) | (855,760 | ) | ||||
Other comprehensive loss, net of tax: | ||||||||
Foreign currency translation adjustments: | ||||||||
Translation loss | (11,694 | ) | (25,758 | ) | ||||
Net change | (11,694 | ) | (25,758 | ) | ||||
Available-for-sale investments: | ||||||||
Change in unrealized loss | (5,400 | ) | (3,406 | ) | ||||
Net change | (5,400 | ) | (3,406 | ) | ||||
Total other comprehensive loss, net of tax | (17,094 | ) | (29,164 | ) | ||||
Less: total comprehensive loss attributable to non-controlling interests | 1,336 | 831 | ||||||
Total comprehensive loss attributable to Sea Limited’s ordinary shareholders | (690,084 | ) | (884,093 | ) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
7
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts expressed in thousands of US dollars (“$”)) |
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
Cash flows from operating activities | ||||||||
Net loss | (674,326 | ) | (855,760 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Allowance for credit losses | 24,189 | 45,941 | ||||||
Amortization of discount on convertible notes | 40,805 | 42,311 | ||||||
Amortization of intangible assets | 5,695 | 7,811 | ||||||
Deferred income tax | (16,515 | ) | (17,512 | ) | ||||
Depreciation of property and equipment | 74,526 | 111,256 | ||||||
Gain on disposal of subsidiary | (75,831 | ) | – | |||||
Gain on re-measurement of equity interests | (3,003 | ) | – | |||||
Impairment loss on investments | 8,856 | – | ||||||
Net loss (gain) on debt extinguishment | 12,158 | (11,427 | ) | |||||
Net foreign exchange differences | (19,041 | ) | (16,993 | ) | ||||
Share-based compensation | 117,186 | 214,560 | ||||||
Share of results of equity investees | 1,588 | (1,198 | ) | |||||
Unrealised loss on marketable equity securities | – | 21,118 | ||||||
Others | 2,943 | 2,764 | ||||||
Operating cash flows before changes in working capital: | (500,770 | ) | (457,129 | ) | ||||
Inventories | (36,408 | ) | (40,037 | ) | ||||
Accounts receivable | (63,383 | ) | (21,017 | ) | ||||
Prepaid expenses and other assets | (213,859 | ) | (188,670 | ) | ||||
Amounts due from related parties | (12,675 | ) | 8,346 | |||||
Operating lease right-of-use assets | (16,199 | ) | (155,440 | ) | ||||
Accounts payable | 29,737 | 56,874 | ||||||
Accrued expenses and other payables | 324,992 | 493,408 | ||||||
Advances from customers | 36,269 | 50,179 | ||||||
Operating lease liabilities | 12,361 | 162,612 | ||||||
Deferred revenue | 488,206 | 490,938 | ||||||
Income tax payable | 16,621 | 37,401 | ||||||
Amounts due to related parties | 9,554 | 13,261 | ||||||
Net cash generated from operating activities | 74,446 | 450,726 | ||||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (103,961 | ) | (242,866 | ) | ||||
Purchase of intangible assets and capitalized software costs | (8,086 | ) | (13,594 | ) | ||||
Purchase of investments | (41,114 | ) | (980,296 | ) | ||||
Proceeds from disposal of property and equipment | 980 | 227 | ||||||
Proceeds from sale and maturity of investments | 3,644 | 28,047 | ||||||
Distribution from investments | 386 | – | ||||||
Acquisition of businesses, net of cash acquired | (90,994 | ) | 17,888 | |||||
Disposal of subsidiary, net of cash disposed | 15,380 | – | ||||||
Change in loans receivable | (87,047 | ) | (459,233 | ) | ||||
Net cash used in investing activities | (310,812 | ) | (1,649,827 | ) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
8
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Amounts expressed in thousands of US dollars (“$”)) |
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
Cash flows from financing activities | ||||||||
Repayment of borrowings and finance lease obligations | (31,824 | ) | (35 | ) | ||||
Proceeds from borrowings | 1,224 | – | ||||||
Proceeds from issuance of ordinary shares, net | 6,234 | 18,953 | ||||||
Transaction with non-controlling interests | (19,042 | ) | – | |||||
Payments for exchange and conversion of convertible notes | (50,000 | ) | (1,929 | ) | ||||
Proceeds from issuance of convertible notes, net | 1,005,662 | – | ||||||
Change in accrued expenses and other payables | (125,417 | ) | 163,369 | |||||
Net cash generated from financing activities | 786,837 | 180,358 | ||||||
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | 8,695 | (31,750 | ) | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 559,166 | (1,050,493 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of the period | 3,570,578 | 7,053,393 | ||||||
Cash, cash equivalents and restricted cash at end of the period | 4,129,744 | 6,002,900 | ||||||
Supplement disclosures of cash flow information: | ||||||||
Income taxes paid | (54,545 | ) | (81,586 | ) | ||||
Interest paid | (12,422 | ) | (22,383 | ) | ||||
Supplement disclosures of non-cash activities: | ||||||||
Purchase of property and equipment included in accrued expenses and other payables | 12,495 | 18,717 | ||||||
Purchase of intangible assets included in accrued expenses and other payables | 3 | (334 | ) | |||||
Purchase of property and equipment included in prepayments | 312 | (87,387 | ) | |||||
Purchase of intangible assets included in prepayments | (6,974 | ) | (3,095 | ) | ||||
Conversion and exchange of convertible notes into ordinary shares | (136,322 | ) | (588,007 | ) | ||||
Acquisition of subsidiaries by conversion of convertible notes or issuance of shares | 72,000 | 252,960 | ||||||
Proceeds from disposal of a subsidiary included in prepaid expenses and other assets | 38,430 | – | ||||||
Transfers of loans receivable to prepaid expenses and other assets | 8,068 | 186 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
9
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Amounts expressed in thousands of US dollars (“$”) except for number of shares) |
No of ordinary shares | Ordinary shares | Additional paid-in capital | Accumulated other comprehensive income (loss) | Statutory reserves | Accumulated deficit | Total Sea Limited shareholders’ equity | Non-controlling interests | Total shareholders’ equity | ||||||||||||||||||||||||||||
$_ | $_ | $_ | $_ | $_ | $_ | $_ | $_ | |||||||||||||||||||||||||||||
Balance as of January 1, 2020 | 463,244,652 | 230 | 4,687,284 | 5,449 | 46 | (3,530,585 | ) | 1,162,424 | 10,228 | 1,172,652 | ||||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||||||
Net loss for the period | – | – | – | – | – | (674,474 | ) | (674,474 | ) | 148 | (674,326 | ) | ||||||||||||||||||||||||
Foreign currency translation adjustments | – | – | – | (10,210 | ) | – | – | (10,210 | ) | (1,484 | ) | (11,694 | ) | |||||||||||||||||||||||
Net change in unrealized loss on available-for-sale investments | – | – | – | (5,400 | ) | – | – | (5,400 | ) | – | (5,400 | ) | ||||||||||||||||||||||||
Acquisition of subsidiary | – | – | – | – | – | – | – | 37,511 | 37,511 | |||||||||||||||||||||||||||
Appropriation of statutory reserves | – | – | – | – | 66 | (66 | ) | – | – | – | ||||||||||||||||||||||||||
Equity component of convertible notes | – | – | 284,727 | – | – | – | 284,727 | – | 284,727 | |||||||||||||||||||||||||||
Purchase of capped calls related to issuance of convertible notes | – | – | (135,700 | ) | – | – | – | (135,700 | ) | – | (135,700 | ) | ||||||||||||||||||||||||
Conversion and exchange of convertible notes into Class A ordinary shares | 14,949,659 | 8 | 136,314 | – | – | – | 136,322 | – | 136,322 | |||||||||||||||||||||||||||
Transaction with non-controlling interests | – | – | (20,771 | ) | – | – | – | (20,771 | ) | 1,729 | (19,042 | ) | ||||||||||||||||||||||||
Disposal of interest in a subsidiary | – | – | – | – | – | – | – | (11,971 | ) | (11,971 | ) | |||||||||||||||||||||||||
Shares issued to depositary bank | 2,000,000 | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
Exercise of share options | 1,122,088 | – | 6,262 | – | – | – | 6,262 | – | 6,262 | |||||||||||||||||||||||||||
Restricted share awards and restricted share units issued | 1,785,359 | 1 | (1 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||
Share-based compensation | – | – | 110,613 | – | – | – | 110,613 | 2,481 | 113,094 | |||||||||||||||||||||||||||
Settlement of share incentives with shares held by depositary bank | (2,807,447 | ) | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||
Balance as of June 30, 2020 | 480,294,311 | 239 | 5,068,728 | (10,161 | ) | 112 | (4,205,125 | ) | 853,793 | 38,642 | 892,435 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
10
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued) (Amounts expressed in thousands of US dollars (“$”) except for number of shares) |
No of ordinary shares | Ordinary shares | Additional paid-in capital | Accumulated other comprehensive (loss) income | Statutory reserves | Accumulated deficit | Total Sea Limited shareholders’ equity | Non-controlling interests | Total shareholders’ equity | ||||||||||||||||||||||||||||
$_ | $_ | $_ | $_ | $_ | $_ | $_ | $_ | |||||||||||||||||||||||||||||
Balance as of July 1, 2020 | 480,294,311 | 239 | 5,068,728 | (10,161 | ) | 112 | (4,205,125 | ) | 853,793 | 38,642 | 892,435 | |||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||||||
Net loss for the year | – | – | – | – | – | (943,582 | ) | (943,582 | ) | (6,249 | ) | (949,831 | ) | |||||||||||||||||||||||
Foreign currency translation adjustments | – | – | – | 13,813 | – | – | 13,813 | 413 | 14,226 | |||||||||||||||||||||||||||
Net change in unrealized gain on available-for-sale investments | – | – | – | 981 | – | – | 981 | 26 | 1,007 | |||||||||||||||||||||||||||
Acquisition of subsidiaries | – | – | – | – | – | – | – | 2,083 | 2,083 | |||||||||||||||||||||||||||
Appropriation of statutory reserves | – | – | – | – | 2,251 | (2,251 | ) | – | – | – | ||||||||||||||||||||||||||
Conversion of convertible notes into Class A ordinary shares | 12,457,159 | 6 | 328,602 | – | – | – | 328,608 | – | 328,608 | |||||||||||||||||||||||||||
Issuance of Class A ordinary shares, net of issuance costs | 15,180,000 | 8 | 2,908,291 | – | – | – | 2,908,299 | – | 2,908,299 | |||||||||||||||||||||||||||
Capital contributed by non-controlling interest | – | – | – | – | – | – | – | 4,631 | 4,631 | |||||||||||||||||||||||||||
Transactions with non-controlling interests | – | – | 477 | 48 | – | – | 525 | (2,219 | ) | (1,694 | ) | |||||||||||||||||||||||||
Shares issued to depositary bank | 4,000,000 | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
Exercise of share options | 1,739,081 | 1 | 55,686 | – | – | – | 55,687 | – | 55,687 | |||||||||||||||||||||||||||
Restricted share awards and restricted share units issued | 1,462,633 | 1 | (1 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||
Share-based compensation | – | – | 164,788 | – | – | – | 164,788 | – | 164,788 | |||||||||||||||||||||||||||
Settlement of share incentives with shares held by depositary bank | (3,201,714 | ) | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||
Balance as of December 31, 2020 | 511,931,470 | 255 | 8,526,571 | 4,681 | 2,363 | (5,150,958 | ) | 3,382,912 | 37,327 | 3,420,239 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
11
SEA LIMITED UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued) (Amounts expressed in thousands of US dollars (“$”) except for number of shares) |
Note | No of ordinary shares | Ordinary shares | Additional paid-in capital | Accumulated other comprehensive income (loss) | Statutory reserves | Accumulated deficit | Total Sea Limited shareholders’ equity | Non-controlling interests | Total Shareholders’ equity | |||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
Balance as of January 1, 2021 | 511,931,470 | 255 | 8,526,571 | 4,681 | 2,363 | (5,150,958 | ) | 3,382,912 | 37,327 | 3,420,239 | ||||||||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||
Net loss for the year | – | – | – | – | – | (856,132 | ) | (856,132 | ) | 372 | (855,760 | ) | ||||||||||||||||||||||||||||
Foreign currency translation adjustments | – | – | – | (24,462 | ) | – | – | (24,462 | ) | (1,296 | ) | (25,758 | ) | |||||||||||||||||||||||||||
Net change in unrealized loss on available-for-sale investments | – | – | – | (3,499 | ) | – | – | (3,499 | ) | 93 | (3,406 | ) | ||||||||||||||||||||||||||||
Acquisition of subsidiaries | 3 | 1,000,000 | 1 | 252,959 | – | – | – | 252,960 | – | 252,960 | ||||||||||||||||||||||||||||||
Appropriation of statutory reserves | – | – | – | – | (597 | ) | 597 | – | – | – | ||||||||||||||||||||||||||||||
Conversion of convertible notes into Class A ordinary shares | 14,734,055 | 7 | 588,000 | – | – | – | 588,007 | – | 588,007 | |||||||||||||||||||||||||||||||
Transaction with non-controlling interests | – | – | (2,553 | ) | 291 | – | – | (2,262 | ) | 2,262 | – | |||||||||||||||||||||||||||||
Shares issued to depositary bank | 7,000,000 | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||||||
Exercise of share options | 4,006,975 | 2 | 18,951 | – | – | – | 18,953 | – | 18,953 | |||||||||||||||||||||||||||||||
Restricted share awards and restricted share units issued | 2,250,704 | 1 | (1 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Share-based compensation | – | – | 203,690 | – | – | – | 203,690 | – | 203,690 | |||||||||||||||||||||||||||||||
Settlement of share incentives with shares held by depositary bank | (6,257,679 | ) | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Balance as of June 30, 2021 | 534,665,525 | 266 | 9,587,617 | (22,989 | ) | 1,766 | (6,006,493 | ) | 3,560,167 | 38,758 | 3,598,925 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
12
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
1. | BASIS OF PRESENTATION |
The unaudited interim condensed consolidated financial statements of Sea Limited (the “Company”), its subsidiaries and variable interest entities (“VIEs”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information using accounting policies that are consistent with those used in the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2020. 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 ended June 30, 2020 and 2021 are not necessarily indicative of results to be expected for any other interim period or for the year ending December 31, 2021. The condensed consolidated balance sheet as of December 31, 2020 was derived from the audited consolidated financial statements, but does not include all of the disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements and the notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020.
VIE disclosures
There were no pledges or collateralization of the VIEs’ assets. Creditors of the VIEs have no recourse to the general credit of the primary beneficiaries of the VIEs, and such amounts have been parenthetically presented on the face of the consolidated balance sheets. The VIEs hold certain assets, including land, data servers and related equipment for use in their operations. The VIEs do not own any facilities except for the rental of certain office premises, warehouses and data centers from third parties under operating lease arrangements. 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 unaudited interim condensed 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 a sales and marketing as well as a research and development 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 VIEs during the periods presented.
13
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
The following tables represent the financial information of the VIEs whom the Company does not have majority voting interests as of December 31, 2020 and June 30, 2021 and for the six months ended June 30, 2020 and 2021 before eliminating the intercompany balances and transactions between the VIEs and other entities within the group:
As of December 31, | As of June 30, | |||||||
2020 | 2021 | |||||||
$ | $ | |||||||
ASSETS: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 94,502 | 97,396 | ||||||
Amounts due from intercompanies (1) | 44,928 | 141,878 | ||||||
Others | 79,484 | 66,892 | ||||||
Total current assets | 218,914 | 306,166 | ||||||
Non-current assets: | ||||||||
Property and equipment, net | 35,453 | 33,988 | ||||||
Long-term investments | 16,080 | 17,313 | ||||||
Deferred tax assets | 47,948 | 48,776 | ||||||
Others | 37,662 | 23,682 | ||||||
Total non-current assets | 137,143 | 123,759 | ||||||
Total assets | 356,057 | 429,925 |
14
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
As of December 31, | As of June 30, | |||||||
2020 | 2021 | |||||||
$ | $ | |||||||
LIABILITIES: | ||||||||
Current liabilities: | ||||||||
Accrued expenses and other payables | 91,186 | 112,185 | ||||||
Deferred revenue | 212,377 | 204,926 | ||||||
Amounts due to intercompanies (1) | 70,019 | 116,898 | ||||||
Others | 31,104 | 28,104 | ||||||
Total current liabilities | 404,686 | 462,113 | ||||||
Non-current liabilities: | ||||||||
Deferred revenue | 55,200 | 70,953 | ||||||
Amounts due to intercompanies (1) | 15,710 | 30,910 | ||||||
Others | 18,418 | 6,759 | ||||||
Total non-current liabilities | 89,328 | 108,622 | ||||||
Total liabilities | 494,014 | 570,735 |
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$ | $ | |||||||
Revenue | ||||||||
- Third party customers | 262,801 | 333,847 | ||||||
- Intercompanies | 70,363 | 84,876 | ||||||
Net loss | (28,770 | ) | (19,089 | ) |
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$ | $ | |||||||
Net cash generated from (used in) operating activities | 59,030 | (12,218 | ) | |||||
Net cash (used in) generated from investing activities | (25,122 | ) | 500 | |||||
Net cash generated from financing activities | 32,220 | 14,025 |
(1) | Amounts due from or to intercompanies consist of intercompany receivables or payables to the other companies within the group arising from intercompany transactions and funds advanced for working capital purpose. |
15
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Principles of consolidation |
The unaudited interim condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and the VIEs for which the Company or a subsidiary of the Company is the primary beneficiary. All significant intercompany transactions and balances between the Company, its subsidiaries and the VIEs are eliminated upon consolidation.
(b) | Use of estimates |
The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to, revenue recognition, estimating the useful lives and impairment assessment of long-lived assets and goodwill, accounting for and impairment assessment of investments, impairment assessment of accounts receivable and loans receivables, accounting for deferred income taxes, accounting for share-based compensation arrangements and accounting for the Company’s financial instruments where the Company is the issuer. Changes in facts and circumstances may result in revised estimates. Given the global economic climate and unforeseen effects from COVID-19 pandemic, the process of estimation has become more challenging. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.
16
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
(c) | Fair value of financial instruments |
Available-for-sale investments are initially recognized at acquisition cost and subsequently remeasured at the end of each reporting period with the change in fair value recognized in accumulated other comprehensive income. Marketable equity securities, investments carried at fair value, certain other assets and share appreciation rights are measured at fair value with corresponding changes in the investments and liabilities’ fair values reflected in consolidated statements of operations. Convertible notes consist of 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes as defined in Note 6 of the consolidated financial statements. For the 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes, the liability component of the convertible notes was initially measured at fair value and subsequently amortized to its redemption amount using the effective interest rate method. The Company, with the assistance of an independent third party valuation firm, determined the estimated fair value of its convertible notes that are recognized in the consolidated financial statements.
(d) | Revenue recognition |
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to for those goods or services. Revenue is measured based on the amount of consideration that the Company expects to receive reduced by discounts, incentives and rebates. Revenue also excludes any amounts collected on behalf of third parties, including sales taxes and indirect taxes.
The Company evaluates revenue from services and sales of goods to determine if it controls such services and goods to be the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). The key indicators that the Company evaluates in determining gross versus net treatment include, but are not limited to, (i) which party is primarily responsible for fulfilling the promise to provide the specified good or service; (ii) which party bears inventory risks before the specified good or service has been transferred to a customer; and (iii) which party has discretion in establishing the price for the specified good or service.
17
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
(e) | Goodwill |
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed from the acquired entity as a result of the Company's acquisitions of interests in its subsidiary and consolidated VIEs. During the measurement period, which does not exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon conclusion of the measurement period, any adjustments are recorded in the consolidated statements of operations.
Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that it might be impaired. In testing goodwill for impairment, the Company evaluates whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company applies a one-step quantitative test and record the amount of goodwill impairment as the excess of a goodwill allocated to the reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
No impairment of goodwill was recorded in the six months ended June 30, 2020 and 2021.
(f) | Leases |
Leases are classified at the inception date as either a finance lease or an operating lease. As the lessee, a lease is a finance lease if any of the following conditions exists: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the asset’s estimated remaining economic life, or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased asset to the lessor at the inception date.
Finance lease assets are included in property and equipment, net, and finance lease liabilities are included in accrued expenses and other payables, current and non-current.
18
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over the periods of their respective leases. Operating leases (with an initial term of more than 12 months) are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities (current), and operating lease liabilities (non-current) in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company utilizes a market-based approach to estimate the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease prepayments, reduced by lease incentives and accrued rent. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
The Company has lease agreements with lease and non-lease components. The Company has elected to account for lease and non-lease components as a single lease component for data center leases only. In addition, leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Certain lease agreements contain rent holidays and escalating rent are considered when determining the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the lease property for purposes of recognizing lease incentives.
19
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
3. | ACQUISITIONS |
During the six months ended June 30, 2021, the Company acquired three companies and its underlying subsidiaries for an aggregate consideration of $282,639. As a result, these companies were consolidated as subsidiaries of the Company from the date of acquisition. These acquisitions support the growth of the Company.
The allocation of the purchase price as of the date of acquisition is summarized as follows:
$_ | ||||
Cash and cash equivalent | 42,294 | |||
Others | 5,219 | |||
Total assets acquired | 47,513 | |||
Income tax payable | (25,682 | ) | ||
Others | (1,976 | ) | ||
Total liabilities assumed | (27,658 | ) | ||
Net assets acquired | 19,855 | |||
Fulfilled by: | ||||
Share consideration(1) | 252,960 | |||
Cash consideration | 29,679 | |||
Goodwill | 262,784 |
(1) | Measured based on the fair value of the Company's ordinary shares on the date of acquisition. |
The goodwill, which is not tax deductible, is mainly attributable to synergies expected to be achieved from the acquisition. The goodwill is allocated within the Digital Entertainment, Digital Financial Services and Other services segments.
The revenue and results since the acquisition date included in the consolidated statement of comprehensive loss for the period ended June 30, 2021 were insignificant. The Company’s revenue and results for the period would not be materially different should the acquisition has otherwise occurred on January 1, 2021.
The related transaction costs of the acquisition were not material to the Company’s consolidated financial statements.
20
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
4. | LOANS RECEIVABLE, NET |
Loans receivable represents loans granted to commercial and consumer customers. The Company monitors credit quality for all loans receivable on a recurring basis by evaluating the customer’s prior repayment history available internally and external sources information, where applicable. The Company uses delinquency status and trends to assist in making new and ongoing credit decisions, and to plan our collection practices and strategies. The following table presents the loans receivable by each of the loan portfolio:
As of | ||||||||
December 31, 2020 | June 30, 2021 | |||||||
$ | $ | |||||||
Commercial | 183,710 | 171,619 | ||||||
Consumer | 259,860 | 710,244 | ||||||
443,570 | 881,863 | |||||||
Allowance for credit losses | (40,484 | ) | (73,890 | ) | ||||
403,086 | 807,973 |
21
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
As of June 30, 2021 | ||||||||||||||||||||||||||||
Year of origination | ||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2018 | 2017 | Prior | Total | ||||||||||||||||||||||
Commercial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Delinquency: | ||||||||||||||||||||||||||||
Current | 19,522 | 106,345 | 16,132 | 5,217 | 3,812 | 1,607 | 152,635 | |||||||||||||||||||||
Past due | ||||||||||||||||||||||||||||
- 1 to 30 days | 668 | 4,365 | 585 | 2,974 | 100 | 11 | 8,703 | |||||||||||||||||||||
- 31 to 60 days | 340 | 3,162 | 276 | 61 | 128 | 2 | 3,969 | |||||||||||||||||||||
- 61 to 90 days | 31 | 287 | 348 | 112 | 7 | 70 | 855 | |||||||||||||||||||||
- More than 90 days | – | 5,017 | 228 | 131 | 34 | 47 | 5,457 | |||||||||||||||||||||
20,561 | 119,176 | 17,569 | 8,495 | 4,081 | 1,737 | 171,619 | ||||||||||||||||||||||
Consumer | ||||||||||||||||||||||||||||
Delinquency: | ||||||||||||||||||||||||||||
Current | 633,129 | 7,871 | 12,325 | 9,461 | 5,989 | 1,313 | 670,088 | |||||||||||||||||||||
Past due | ||||||||||||||||||||||||||||
- 1 to 30 days | 10,899 | 866 | 585 | 513 | 134 | 37 | 13,034 | |||||||||||||||||||||
- 31 to 60 days | 6,483 | 506 | 1,000 | 1,676 | 734 | 119 | 10,518 | |||||||||||||||||||||
- 61 to 90 days | 4,260 | 1,286 | 130 | 271 | 64 | 13 | 6,024 | |||||||||||||||||||||
- More than 90 days | 7,101 | 2,962 | 246 | 88 | 25 | 158 | 10,580 | |||||||||||||||||||||
661,872 | 13,491 | 14,286 | 12,009 | 6,946 | 1,640 | 710,244 |
22
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
An analysis of the loans receivable’s allowance for credit losses by portfolio segment is as follows:
Commercial | Consumer | Total | ||||||||||
$ | $ | $ | ||||||||||
Balance at January 1, 2020 | – | – | – | |||||||||
Acquisition of subsidiaries | 14,721 | 6,750 | 21,471 | |||||||||
(Reversal) Charged to expenses | (1,687 | ) | 12,944 | 11,257 | ||||||||
Write-off of loans receivable | (3,911 | ) | (6,115 | ) | (10,026 | ) | ||||||
Exchange differences | (915 | ) | (201 | ) | (1,116 | ) | ||||||
Balance at June 30, 2020 | 8,208 | 13,378 | 21,586 | |||||||||
Acquisition of subsidiaries | 2,335 | 2,604 | 4,939 | |||||||||
Charged to expenses | 27,750 | 12,061 | 39,811 | |||||||||
Write-off of loans receivable | (10,890 | ) | (16,460 | ) | (27,350 | ) | ||||||
Exchange differences | 921 | 577 | 1,498 | |||||||||
Balance at December 31,2020 | 28,324 | 12,160 | 40,484 | |||||||||
Charged to expenses | 11,001 | 36,695 | 47,696 | |||||||||
Write-off of loans receivable | (9,757 | ) | (2,544 | ) | (12,301 | ) | ||||||
Exchange differences | (951 | ) | (1,038 | ) | (1,989 | ) | ||||||
Balance at June 30, 2021 | 28,617 | 45,273 | 73,890 |
Additions to the Company’s allowance for credit losses were recorded within general and administrative expenses.
23
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
5. | INVESTMENTS |
The following table sets forth a breakdown of the categories of short-term and long-term investments held by the Company:
As of | ||||||||
December 31, 2020 | June 30, 2021 | |||||||
$ | $ | |||||||
Short-term investments | ||||||||
Debt securities: | ||||||||
Held to maturity | 28,330 | 718,517 | ||||||
Available-for-sale | 21,769 | 168,091 | ||||||
Equity securities | 76,000 | 75,533 | ||||||
126,099 | 962,141 | |||||||
Long-term investments | ||||||||
Debt securities: | ||||||||
Held to maturity | 68,854 | 67,463 | ||||||
Available-for-sale | 5,276 | 45,385 | ||||||
Equity securities | 21,419 | 42,684 | ||||||
Equity method investments | 94,933 | 108,848 | ||||||
Investments carried at fair value | – | 21,992 | ||||||
190,482 | 286,372 |
Held to maturity investments includes time deposits placed with financial institutions, medium-term notes and sovereign bonds. Available-for-sale securities includes sovereign bonds, exchangeable loan, convertible loan and corporate bonds.
Short-term equity securities represent investment in marketable equity securities and warrant. The unrealized fair value loss of nil and $21,118 related to the marketable equity securities had been recognized in the consolidated statements of operations as "Investment gain (loss), net" during the six months ended June 30, 2020 and 2021, respectively.
Investments carried at fair value represents unquoted equity securities which are accounted for in accordance with ASC 946 Financial Services—Investment Companies.
24
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
The following table summarizes the cost or amortized cost, gross unrecognized gains and losses, gross unrealized gains and losses, and fair value of the Company’s debt securities and investments carried at fair value as of December 31, 2020 and June 30, 2021 are shown as below:
As of December 31, 2020 | ||||||||||||||||||||||||
Cost or Amortized cost | Gross unrecognized gains | Gross unrecognized losses | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Short-term investments | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Held to maturity | 28,330 | – | (1 | ) | – | – | 28,329 | |||||||||||||||||
Available-for-sale | 20,859 | – | – | 910 | – | 21,769 | ||||||||||||||||||
Long-term investments | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Held to maturity | 68,854 | 3,197 | (23 | ) | – | – | 72,028 | |||||||||||||||||
Available-for-sale | 5,174 | – | – | 102 | – | 5,276 | ||||||||||||||||||
123,217 | 3,197 | (24 | ) | 1,012 | – | 127,402 |
As of June 30, 2021 | ||||||||||||||||||||||||
Cost or Amortized cost | Gross unrecognized gains | Gross unrecognized losses | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Short-term investments | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Held to maturity | 718,517 | – | – | – | – | 718,517 | ||||||||||||||||||
Available-for-sale | 170,872 | – | – | 77 | (2,858 | ) | 168,091 | |||||||||||||||||
Long-term investments | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Held to maturity | 67,463 | 2,123 | (495 | ) | – | – | 69,091 | |||||||||||||||||
Available-for-sale | 45,003 | – | – | 426 | (44 | ) | 45,385 | |||||||||||||||||
Investments carried at fair value | 21,992 | – | – | – | – | 21,992 | ||||||||||||||||||
1,023,847 | 2,123 | (495 | ) | 503 | (2,902 | ) | 1,023,076 |
25
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
6. | CONVERTIBLE NOTES |
As of | ||||||||
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
2023 Convertible Notes | 41,263 | 29,190 | ||||||
2024 Convertible Notes | 916,560 | 348,137 | ||||||
2025 Convertible Notes | 882,583 | 905,169 | ||||||
1,840,406 | 1,282,496 |
The Company issued the following convertible notes and the terms are as follow:
2023 Convertible Notes | 2024 Convertible Notes | 2025 Convertible Notes | |
Issuance date | June 18, 2018 | November 18, 2019 | May 22, 2020 |
Maturity date | July 1, 2023 | December 1, 2024 | December 1, 2025 |
Principal amount | $575,000 | $1,150,000 | $1,150,000 |
Interest rate | 2.25% | 1.00% | 2.375% |
Initial conversion rate | 50.5165 American Depositary Shares (“ADSs”) per $1 principal amount, equivalent to $19.80 per ADS | 19.9475 ADSs per $1 principal amount, equivalent to $50.13 per ADS | 11.0549 ADSs per $1 principal amount, equivalent to $90.46 per ADS |
Agreed conversion date | January 1, 2023 | June 1, 2024 | September 1, 2025 |
The 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes holders (the ‘Holders’) have the right, at their option, to convert the outstanding principal amount of the convertible notes, in whole or in part in integral multiples of $1 principal amount (i) upon satisfaction of one or more of the conversion conditions as defined in the indenture prior to the close of business day immediately preceding the agreed conversion date; or (ii) anytime on or after the agreed conversion date until the close of business on the second scheduled trading day immediately preceding the maturity date (the “Conversion Option”).
26
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
The conversion is subject to the anti-dilution and make-whole fundamental change adjustments. Upon conversion, the Company has the right, at its option, to pay or deliver, either cash, ADSs, or a combination of cash and ADSs to the Holders.
If certain events of default, changes in tax laws of the relevant taxing jurisdiction or fundamental change, optional redemption or clean up redemption as defined in the indenture were to occur, of which the optional redemption and clean up redemption only applies to the 2024 Convertible Notes and 2025 Convertible Notes, the outstanding obligations under the respective convertible notes could be immediately due and payable (the “Contingent Redemption Options”).
The Company evaluated the Conversion Option and Contingent Redemption Options in accordance with ASC 815 to determine if these features require bifurcation. The Conversion Option was not required to be bifurcated because it was indexed to the Company’s ADSs and meets all additional conditions for equity classification. The Contingent Redemption Options were not required to be bifurcated because they were considered to be clearly and closely related to the debt host, as the convertible notes were not issued at a substantial discount and are redeemable at par.
The 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes were accounted for under ASC 470-20 Cash Conversion Subsections as follow:
2023 Convertible Notes | 2024 Convertible Notes | 2025 Convertible Notes | ||||||||||
Liability component | $ | 410,926 | $ | 897,918 | $ | 856,635 | ||||||
Effective interest rate | 9.38 | % | 6.03 | % | 8.21 | % | ||||||
Equity component | $ | 152,714 | $ | 240,582 | $ | 284,727 | ||||||
Debt issuance cost, allocated in proportion to the allocation of proceeds | $ | 11,360 | $ | 11,500 | $ | 8,638 |
27
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
The liability component was initially measured at fair value and subsequently amortized to its redemption amount using the effective interest method. The residual value was allocated to the equity component, classified within “Additional Paid-up Capital” and not subsequently remeasured. The following table presents the carrying amount of the liability components of the 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes:
December 31, 2020 | June 30, 2021 | |||||||||||||||||||||||||||||||
2023 Convertible Notes | 2024 Convertible Notes | 2025 Convertible Notes | Total | 2023 Convertible Notes | 2024 Convertible Notes | 2025 Convertible Notes | Total | |||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
Principal | 49,000 | 1,112,320 | 1,149,500 | 2,310,820 | 33,530 | 412,402 | 1,149,500 | 1,595,432 | ||||||||||||||||||||||||
Less: unamortized issuance cost and debt discount | (7,737 | ) | (195,760 | ) | (266,917 | ) | (470,414 | ) | (4,340 | ) | (64,265 | ) | (244,331 | ) | (312,936 | ) | ||||||||||||||||
Net carrying amount | 41,263 | 916,560 | 882,583 | 1,840,406 | 29,190 | 348,137 | 905,169 | 1,282,496 |
During the six months ended June 30, 2020 and 2021, the Company recognized total interest expense for coupon interest of $14,849 and $18,715, respectively and amortization of discount on the liability component amounted to $40,805 and $42,311, respectively.
The if-converted value of 2023, 2024 and 2025 Convertible Notes exceeded the principal amount by $443,710, $3,304,202 and $1,379,949, as of December 31, 2020, respectively and $431,592, $1,846,564 and $2,340,009 as of June 30, 2021, respectively.
28
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
Capped call transactions
In connection with the offering of 2024 Convertible Notes and 2025 Convertible Notes, the Company entered into separately negotiated capped call transactions with certain counterparties (collectively, the “Capped Calls”). The details of the Capped Calls are as follows:
2024 Convertible Notes | 2025 Convertible Notes | |||||||
Initial strike price per share | $ | 50.13 | $ | 90.46 | ||||
Initial cap price per share | $ | 70.36 | $ | 136.54 |
The Capped Calls are generally intended to reduce or offset the potential economic dilution to our Class A ordinary shares upon any conversion of the 2024 Convertible Notes and 2025 Convertible Notes, respectively, with such reduction or offset, as the case may be, subject to a cap based on the cap price. As the Capped Calls are considered indexed to the Company’s own stock and are equity classified, they are recorded in shareholders’ equity and are not accounted for as derivative. The costs of $97,060 and $135,700 incurred in connection with the Capped Calls of the 2024 Convertible Notes and 2025 Convertible Notes, respectively, were recorded as reductions to additional paid-in capital. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be antidilutive under treasury stock method.
Conversion of convertible notes
During the six months ended June 30, 2021, a total principal amount of $715,388 convertible notes were converted by certain Holders. These conversions were satisfied through Class A ordinary shares or a combination of cash and Class A ordinary shares settlement.
Subsequent to June 30, 2021, certain Holders converted a total principal amount of $181,252 convertible notes. These conversions were satisfied through Class A ordinary shares settlement.
The conversion completed during the six months ended June 30, 2021 resulted in a net gain on debt extinguishment of $11,427 recorded in the consolidated statements of operations as “Interest expense”.
29
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
7. | SHARE BASED COMPENSATION |
The Company amended its 2009 share incentive plan (the “Plan”) in July 2019. Under the Plan, the Company may grant options, restricted share award (“RSA”), restricted share unit (“RSU”) or share appreciation right (“SAR”) to its officers, employees, directors and other eligible persons (collectively known as “Eligible Persons”) of up to 83,000,000 Class A ordinary shares. The Plan is administered by an authorized administrator appointed by the Board of Directors of the Company set forth in the Plan (the “Plan Administrator”).
The maximum number of shares which may be issued pursuant to all awards under the Plan will increase on January 1 of each of 2019, 2020, 2021 and 2022 by 5% of the total number of ordinary shares of all classes of the Company outstanding on that day immediately before such annual increase pursuant to the Plan. With effect on January 1, 2019, July 25, 2019, January 1, 2020 and January 1, 2021, the maximum number of shares which may be issued pursuant to all awards under the Plan increased to 100,129,938, 103,129,938, 123,292,170 and 148,888,743 Class A ordinary shares.
During the six months ended June 30, 2020 and 2021, the Company granted 5,806,825 options, 4,010,828 RSUs and 78,595 SARs, and 4,162,121 options, 2,220,693 RSUs and 32,635 SARS to the Eligible Persons. All options granted have a contractual term of ten years. The options vest according to the stated vesting period in the grantee’s option agreement. The RSUs and SARs generally vest 25% on the first anniversary year from the stated vesting commencement date and the remaining 75% will vest in 12 substantially equal quarterly instalments.
The Company calculated the estimated fair value of the options on the respective grant dates using the Black-Scholes option pricing model with the following assumptions.
Granted in 2021 | ||||
Risk-free interest rates | 0.74%~1.07% | |||
Expected term | 5.6~7.5 years | |||
Expected volatility | 32.1%~33.0% | |||
Expected dividend yield | – | |||
Fair value of share options | $71.70~$84.14 |
30
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
Total compensation expense relating to options, RSAs, RSUs and SARs granted to Eligible Persons after deducting forfeitures recognized for the six months ended June 30, 2020 and 2021, respectively, is as follows:
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
Share options: | ||||||||
Cost of revenue | 65 | 247 | ||||||
Sales and marketing expenses | 31 | 5 | ||||||
General and administrative expenses | 74,363 | 109,351 | ||||||
Research and development expenses | 213 | 33 | ||||||
74,672 | 109,636 | |||||||
RSAs and RSUs: | ||||||||
Cost of revenue | 1,993 | 3,845 | ||||||
Sales and marketing expenses | 4,306 | 9,562 | ||||||
General and administrative expenses | 14,299 | 27,697 | ||||||
Research and development expenses | 17,824 | 52,950 | ||||||
38,422 | 94,054 | |||||||
SARs: | ||||||||
Cost of revenue | 980 | 2,471 | ||||||
Sales and marketing expenses | 1,898 | 4,707 | ||||||
General and administrative expenses | 1,078 | 3,029 | ||||||
Research and development expenses | 136 | 663 | ||||||
4,092 | 10,870 | |||||||
Total | 117,186 | 214,560 |
31
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
8. | INCOME TAX EXPENSE |
Income tax expense comprises:
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
Income tax | 45,477 | 120,369 | ||||||
Deferred tax | (16,515 | ) | (17,512 | ) | ||||
Withholding tax expense | 22,096 | 23,359 | ||||||
51,058 | 126,216 |
9. | LOSS PER SHARE |
Basic and diluted loss per share for each of the periods presented is calculated as follows:
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
Numerator: | ||||||||
Net loss attributable to ordinary shareholders | (674,474 | ) | (856,132 | ) | ||||
Denominator: | ||||||||
Weighted-average number of shares outstanding - basic and diluted | 464,344,956 | 519,037,660 | ||||||
Basic and diluted loss per share: | (1.45 | ) | (1.65 | ) |
The following potential common shares were excluded from calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
Share options | 51,828,665 | 50,245,808 | ||||||
RSAs/RSUs | 9,994,971 | 8,896,838 | ||||||
Convertible notes | 55,682,148 | 22,627,815 | ||||||
117,505,784 | 81,770,461 |
32
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
The denominator for diluted loss per share for the six months ended June 30, 2020 and 2021 does not include any effect from the Capped Calls (Note 6) because it would be anti-dilutive. In the event of conversion of any or all of the 2024 Convertible Notes and 2025 Convertible Notes, the shares that would be delivered to the Company under the Capped Calls are designed to neutralize the dilutive effect of the shares that the Company would issue under the convertible notes.
During the six months ended June 30, 2020 and 2021, respectively, the Company issued 2,000,000 and 7,000,000 Class A ordinary shares to its share depositary bank which will be used to settle share incentive awards. No consideration was received by the Company for this issuance of Class A ordinary shares. These Class A ordinary shares are legally issued and outstanding but are treated as escrowed shares for accounting purposes and therefore, have been excluded from the computation of loss per share. Any Class A ordinary shares not used in the settlement of share incentive awards will be returned to the Company.
During the six months ended June 30, 2020 and 2021, respectively, 2,807,447 and 6,257,679 issued Class A ordinary shares were used to settle the exercise of share incentive awards.
33
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
10. | RELATED PARTY TRANSACTIONS |
(a) | Related parties (1) |
Name of related parties | Relationship with the Company |
Tencent Limited and its affiliates (“Tencent”) | A shareholder of the Company |
(1) | These are the related parties that have engaged in significant transactions with the Company for the six months ended June 30, 2020 and 2021. |
(b) | The Company had the following significant related party transactions for the six months ended June 30, 2020 and 2021, respectively: |
Six months ended June 30, | ||||||||
2020 | 2021 | |||||||
$ | $_ | |||||||
Royalty fee and license fee to: | ||||||||
- Tencent | 53,931 | 69,128 | ||||||
Services provided by: | ||||||||
- Tencent | 11,369 | 9,935 | ||||||
(c) | The Company had the following significant related party balances as of December 31, 2020 and June 30, 2021: |
As of | ||||||||
December 31, | June 30, | |||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
Amounts due to related parties: | ||||||||
- Tencent | 38,416 | 57,082 |
34
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
11. | SEGMENT REPORTING |
The Company has three reportable segments, namely digital entertainment, e-commerce and digital financial services. The Chief Operating Decision Maker (“CODM”) reviews the performance of each segment based on revenue and certain key operating metrics of the operations and uses these results for the purposes of allocating resources to and evaluating financial performance of each segment.
Description of Reportable Segments:
Digital entertainment – Garena’s platform offers mobile and PC online games and develops mobile games for the global market. Garena is the global leader in eSports, it also provides access to other entertainment content and social features, such as live streaming of gameplay, user chat and online forums.
E-commerce – Shopee’s platform is a mobile-centric, social-focused marketplace. It provides users with a convenient, safe, and trusted shopping environment with integrated payment, logistics infrastructure and comprehensive seller services. Products from manufacturers and third parties are also purchased and sold directly to buyers on Shopee’s platform.
Digital financial services – SeaMoney provides a variety of payment services and loans to individuals and businesses. It is an important payment infrastructure supporting the Company’s digital entertainment and e-commerce businesses. In addition, SeaMoney also integrates with third party merchant partners and covers a broad set of consumption use cases.
A combination of multiple business activities that does not meet the quantitative thresholds to qualify as reportable segments are grouped together as “Other services”.
35
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
Information about segments for the six months ended June 30, 2020 and 2021 presented were as follows:
For the Six Months ended June 30, 2020 | ||||||||||||||||||||||||
Digital Entertainment | E-Commerce | Digital Financial Services | Other Services | Unallocated expenses (1) | Consolidated | |||||||||||||||||||
$ | $ | | $ | $ | $ | $ | ||||||||||||||||||
Revenue | 753,629 | 706,230 | 22,032 | 115,063 | – | 1,596,954 | ||||||||||||||||||
Operating income (loss) | 341,064 | (636,541 | ) | (193,612 | ) | (23,632 | ) | (127,806 | ) | (640,527 | ) | |||||||||||||
Non-operating income, net | 18,847 | |||||||||||||||||||||||
Income tax expense | (51,058 | ) | ||||||||||||||||||||||
Share of results of equity investees | (1,588 | ) | ||||||||||||||||||||||
Net loss | (674,326 | ) |
For the Six Months ended June 30, 2021 | ||||||||||||||||||||||||
Digital Entertainment | E-Commerce | Digital Financial Services | Other Services | Unallocated expenses (1) | Consolidated | |||||||||||||||||||
$ | $ | $ | $ | $ | $ | |||||||||||||||||||
Revenue | 1,805,602 | 2,077,487 | 140,039 | 21,064 | – | 4,044,192 | ||||||||||||||||||
Operating income (loss) | 1,029,577 | (1,084,139 | ) | (316,648 | ) | (84,582 | ) | (226,637 | ) | (682,429 | ) | |||||||||||||
Non-operating loss, net | (48,313 | ) | ||||||||||||||||||||||
Income tax expense | (126,216 | ) | ||||||||||||||||||||||
Share of results of equity investees | 1,198 | |||||||||||||||||||||||
Net loss | (855,760 | ) |
(1) Unallocated expenses are mainly relating to share-based compensation, general and corporate administrative costs, such as professional fees and other miscellaneous items that are not allocated to segments. These expenses are excluded from segments results as they are not reviewed by the CODM as part of segment performance.
36
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
Revenue from external customers is classified based on the geographical locations where the services were provided.
For the Six Months ended June 30, | ||||||||
2020 | 2021 | |||||||
$_ | $_ | |||||||
Revenue | ||||||||
Southeast Asia | 992,331 | 2,541,824 | ||||||
Latin America | 300,830 | 776,728 | ||||||
Rest of Asia | 256,911 | 560,012 | ||||||
Rest of the world | 46,882 | 165,628 | ||||||
Consolidated revenue | 1,596,954 | 4,044,192 |
12. | FAIR VALUE MEASUREMENTS |
ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
In accordance with ASC 820, the Company measures cash equivalents, restricted cash, available-for-sale investments, marketable equity securities investments, investments carried at fair value, certain other assets, derivative instruments and SARs at fair value. The liability component of the 2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes is measured at fair value on its issuance and extinguishment date. Cash equivalents are classified within Level 1 because they are valued using quoted market prices in active markets for identical assets and liabilities.
37
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
Derivative instruments are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.
As of December 31, 2020 and June 30, 2021, Level 3 assets and liabilities of the Company included investments in exchangeable and convertible loan, investments in sovereign bonds, investments carried at fair value and preference shares of investees and other assets.
Investments in debt securities - for short-term investment in debt securities, the carrying amount approximates fair value due to its short-term nature.
Other assets – the Company used Market approach to determine the fair value of certain assets by comparing to the sale and purchase transactions of comparable assets in the market, adjusted with differences such as size, physical condition, location and etc.
2023 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes – the Company used discounted cash flow method to determine the fair value of the liability component (non-recurring, Level 3). The discounted cash flow taking into the present value of expected future cash flows from coupon interest and redemption amount, discounted by the credit yield as at issuance date with reference to similar instruments that did not have associated convertible features.
Investments carried at fair value – the Company used a combination of valuation methodologies, including market and income approaches based on the Company’s best estimate, which is determined by using information including but not limited to the pricing of recent rounds of financing of the investees, future cash flow forecasts, liquidity factors and multiples of a selection of comparable companies.
38
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair value measurement at December 31, 2020 | ||||||||||||||||
Quoted prices in active markets for identical assets (Level 1) $ | Significant other observable inputs (Level 2) $ | Unobservable inputs (Level 3) $ | Total $ | |||||||||||||
Cash equivalents | 74,272 | – | – | 74,272 | ||||||||||||
Held to maturity investments | 100,071 | – | 286 | 100,357 | ||||||||||||
Available-for-sale investments | 5,688 | – | 21,357 | 27,045 | ||||||||||||
Equity securities | 76,000 | – | – | 76,000 | ||||||||||||
Other assets | – | – | 19,024 | 19,024 | ||||||||||||
Share appreciation rights | (11,640 | ) | – | – | (11,640 | ) | ||||||||||
244,391 | – | 40,667 | 285,058 |
Fair value measurement at June 30, 2021 | ||||||||||||||||
Quoted prices in active markets for identical assets (Level 1) $ | Significant other observable inputs (Level 2) $ | Unobservable inputs (Level 3) $ | Total $ | |||||||||||||
Cash equivalents | 575,601 | – | – | 575,601 | ||||||||||||
Held to maturity investments | 787,122 | – | 486 | 787,608 | ||||||||||||
Available-for-sale investments | 49,017 | – | 164,459 | 213,476 | ||||||||||||
Equity securities | 55,533 | – | – | 55,533 | ||||||||||||
Investments carried at fair value | – | – | 21,992 | 21,992 | ||||||||||||
Other assets | – | – | 16,221 | 16,221 | ||||||||||||
Derivative assets(1) | – | 67 | – | 67 | ||||||||||||
Derivative liabilities (2) | – | (1,204 | ) | – | (1,204 | ) | ||||||||||
Share appreciation rights | (18,038 | ) | – | – | (18,038 | ) | ||||||||||
1,449,235 | (1,137 | ) | 203,158 | 1,651,256 |
(1) Included in prepaid expenses and other assets in the consolidated balance sheets and not designated as hedges.
(2) Included in accrued expenses and other payables in the consolidated balance sheets and not designated as hedges.
39
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
Reconciliations of assets and liabilities categorized within Level 3 under the fair value hierarchy are as follow:
$ | ||||
Assets: | ||||
Available-for-sale investments | ||||
Balance at January 1, 2020 | 128,418 | |||
Impairments | (13,429 | ) | ||
Conversion into ordinary shares of investees | (72,000 | ) | ||
Fair value loss included in other comprehensive income | (5,400 | ) | ||
Balance at June 30, 2020 | 37,589 | |||
Addition | 20,429 | |||
Impairments | (37,571 | ) | ||
Fair value loss included in other comprehensive income | 910 | |||
Balance at December 31, 2020 | 21,357 | |||
Addition | 146,871 | |||
Fair value loss included in other comprehensive income | (3,769 | ) | ||
Balance as at June 30, 2021 | 164,459 |
Investments carried at fair value | ||||
Balance at January 1, 2020, June 30, 2020 and December 31, 2020 | – | |||
Addition | 21,992 | |||
Balance at June 30, 2021 | 21,992 |
Other assets | ||||
Balance at January 1, 2020 | – | |||
Acquisition of subsidiary | 8,718 | |||
Additions | 10,928 | |||
Disposals | (45 | ) | ||
Exchange differences | (373 | ) | ||
Balance at June 30, 2020 | 19,228 | |||
Acquisition of subsidiary | 142 | |||
Additions | 2,412 | |||
Disposals | (318 | ) | ||
Write-down | (3,713 | ) | ||
Exchange differences | 1,273 | |||
Balance at December 31, 2020 | 19,024 | |||
Additions | 186 | |||
Disposals | (1,989 | ) | ||
Write-down | (441 | ) | ||
Exchange differences | (559 | ) | ||
Balance at June 30, 2021 | 16,221 |
The Company’s valuation techniques used to measure the fair value were derived from management’s assumptions of estimations.
40
SEA LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in thousands of US dollars (“$”) except for number of shares and per share data)
13. | COMMITMENTS AND CONTINGENCIES |
Purchase commitments
The Company has commitments to purchase property and equipment of $165,717 and $219,496, committed licensing fee payable for the licensing of game titles of $2,799 and $6,015 and commitment to invest in certain companies of $30,136 and $89,121 as of December 31, 2020 and June 30, 2021, respectively.
Minimum guarantee commitments
The Company has commitments to pay minimum guarantee of royalty fee to game developers for certain online games it licensed from those game developers. As of December 31, 2020 and June 30, 2021, the minimum guarantee commitment amounted to $24,473 and $23,043 respectively, for its launched games and licensed but yet launched games.
Operating lease commitments
The Company has entered into commercial operating and finance leases for the use of computers, offices, warehouses and data centers as lessee. These leases have original terms not exceeding 10 years. These leases have varying terms, escalation clauses and renewal rights. As of December 31, 2020 and June 30, 2021, the Company has additional operating leases, primarily for offices, warehouses and data centers, that have not yet commenced of $30,404 with lease terms not exceeding 5 years and $410,751 with lease terms not exceeding 10 years.
Others
The Company has commitments to extend credit to customers on demand and interest receivables on non-performing assets which is not accrued. As of December 31, 2020 and June 30, 2021, the undrawn credit facilities and interest receivables on non-performing assets amounted to $6,533 and $176 and $2,295 and $2,961, respectively.
41