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United States securities and exchange commission logo
February 22, 2022
Bangxin Zhang
Chief Executive Officer
TAL Education Group
15/F, Danling SOHO
6 Danling Street, Haidian District
Beijing 100080
People s Republic of China
Re: TAL Education Group
Form 20-F for the
Fiscal Year Ended February 28, 2021
Form 6-K filed
November 15, 2021
File No. 001-34900
Dear Mr. Zhang:
We have reviewed your filings and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Annual Report on Form 20-F
Item 3. Key Information, page 3
1. Please disclose
prominently that you are not a Chinese operating company but a Cayman
Islands holding company
with operations conducted by your subsidiaries and through
contractual
arrangements with a variable interest entity (VIE) based in China and that this
structure involves
unique risks to investors. If true, disclose that these contracts have not
been tested in court.
Explain whether the VIE structure is used to provide investors with
exposure to foreign
investment in China-based companies where Chinese law prohibits
direct foreign
investment in the operating companies, and disclose that investors may
never hold equity
interests in the Chinese operating company. Your disclosure should
acknowledge that
Chinese regulatory authorities could disallow this structure, which
would likely result in
a material change in your operations and/or a material change in the
Bangxin Zhang
FirstName LastNameBangxin Zhang
TAL Education Group
Comapany22,
February NameTAL
2022 Education Group
February
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value of your securities, including that it could cause the value of
such securities to
significantly decline or become worthless. Provide a cross-reference
to your detailed
discussion of risks facing the company as a result of this structure.
2. Provide prominent disclosure about the legal and operational risks
associated with being
based in or having the majority of the company s operations in
China. Your disclosure
should make clear whether these risks could result in a material
change in your operations
and/or the value of your securities or could significantly limit or
completely hinder your
ability to offer or continue to offer securities to investors and
cause the value of such
securities to significantly decline or be worthless. Your disclosure
should address how
recent statements and regulatory actions by China s government, such
as those related to
the use of variable interest entities and data security or
anti-monopoly concerns, have or
may impact the company s ability to conduct its business, accept
foreign investments, or
list on a U.S. or other foreign exchange. Please disclose whether your
auditor is subject to
the determinations announced by the PCAOB on December 16, 2021 and
whether and
how the Holding Foreign Companies Accountable Act and related
regulations will affect
your company. This summary should address, but not necessarily be
limited to, the risks
highlighted in the Forward-Looking Statements section.
3. Clearly disclose how you will refer to the holding company,
subsidiaries, and VIEs when
providing the disclosure throughout the document so that it is clear
to investors which
entity the disclosure is referencing and which subsidiaries or
entities are conducting the
business operations. Refrain from using terms such as we or
our when describing
activities or functions of a VIE. For example, disclose, if true, that
your subsidiaries
and/or the VIE conduct operations in China, that the VIE is
consolidated for accounting
purposes but is not an entity in which you own equity, and that the
holding company does
not conduct operations. Disclose clearly the entity (including the
domicile) in which
investors are purchasing an interest.
4. Disclose clearly that the company uses a structure that involves a VIE
based in China and
what that entails, and provide early in the summary a diagram of the
company s corporate
structure, identifying the person or entity that owns the equity in
each depicted entity.
Describe all contracts and arrangements through which you claim to
have economic rights
and exercise control that results in consolidation of the VIE s
operations and financial
results into your financial statements. Identify clearly the entity in
which investors are
purchasing their interest and the entity(ies) in which the company s
operations are
conducted. Describe the relevant contractual agreements between the
entities and how
this type of corporate structure may affect investors and the value of
their investment,
including how and why the contractual arrangements may be less
effective than direct
ownership and that the company may incur substantial costs to enforce
the terms of the
arrangements. Disclose the uncertainties regarding the status of the
rights of the Cayman
Islands holding company with respect to its contractual arrangements
with the VIE, its
founders and owners, and the challenges the company may face enforcing
these
contractual agreements due to legal uncertainties and jurisdictional
limits.
Bangxin Zhang
FirstName LastNameBangxin Zhang
TAL Education Group
Comapany22,
February NameTAL
2022 Education Group
February
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FirstName LastName
5. Revise to provide a summary of risk factors, disclose the risks that
your corporate
structure and being based in or having the majority of the company s
operations in China
poses to investors. In particular, describe the significant
regulatory, liquidity, and
enforcement risks with cross-references to the more detailed
discussion of these risks in
the document. For example, specifically discuss risks arising from the
legal system in
China, including risks and uncertainties regarding the enforcement of
laws and that rules
and regulations in China can change quickly with little advance
notice; and the risk that
the Chinese government may intervene or influence your operations at
any time, or may
exert more control over offerings conducted overseas and/or foreign
investment in China-
based issuers, which could result in a material change in your
operations and/or the value
of your securities. Acknowledge any risks that any actions by the
Chinese government to
exert more oversight and control over offerings that are conducted
overseas and/or foreign
investment in China-based issuers could significantly limit or
completely hinder your
ability to offer or continue to offer securities to investors and
cause the value of such
securities to significantly decline or be worthless.
6. Disclose each permission or approval that you, your subsidiaries, or
the VIEs are required
to obtain from Chinese authorities to operate your business and to
offer your securities to
foreign investors. State whether you, your subsidiaries, or VIEs are
covered by
permissions requirements from the China Securities Regulatory
Commission (CSRC),
Cyberspace Administration of China (CAC) or any other governmental
agency that is
required to approve the VIE s operations, and state affirmatively
whether you have
received all requisite permissions or approvals and whether any
permissions or approvals
have been denied. Please also describe the consequences to you and
your investors if you,
your subsidiaries, or the VIEs: (i) do not receive or maintain such
permissions or
approvals, (ii) inadvertently conclude that such permissions or
approvals are not required,
or (iii) applicable laws, regulations, or interpretations change and
you are required to
obtain such permissions or approvals in the future.
7. Provide a clear description of how cash is transferred through your
organization. Disclose
your intentions to distribute earnings or settle amounts owed under
the VIE agreements.
Quantify any cash flows and transfers of other assets by type that
have occurred between
the holding company, its subsidiaries, and the consolidated VIEs, and
direction of
transfer. Quantify any dividends or distributions that a subsidiary or
consolidated VIE
have made to the holding company and which entity made such transfer,
and their tax
consequences. Similarly quantify dividends or distributions made to
U.S. investors, the
source, and their tax consequences. Your disclosure should make clear
if no transfers,
dividends, or distributions have been made to date. Describe any
restrictions on foreign
exchange and your ability to transfer cash between entities, across
borders, and to U.S.
investors. Describe any restrictions and limitations on your ability
to distribute earnings
from the company, including your subsidiaries and/or the consolidated
VIEs, to the parent
company and U.S. investors as well as the ability to settle amounts
owed under the VIE
agreements. Provide cross-references to the condensed consolidating
schedule and the
consolidated financial statements.
Bangxin Zhang
FirstName LastNameBangxin Zhang
TAL Education Group
Comapany22,
February NameTAL
2022 Education Group
February
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FirstName LastName
8. We note that the consolidated VIEs constitute a material part of your
consolidated
financial statements. Please provide in tabular form a condensed
consolidating schedule
that disaggregates the operations and depicts the financial position,
cash flows, and results
of operations as of the same dates and for the same periods for which
audited consolidated
financial statements are required. The schedule should present major
line items, such as
revenue and cost of goods/services, and subtotals and disaggregated
intercompany
amounts, such as separate line items for intercompany receivables and
investment in
subsidiary. The schedule should also disaggregate the parent company,
the VIEs and its
consolidated subsidiaries, the WFOEs that are the primary beneficiary
of the VIEs, and an
aggregation of other entities that are consolidated. The objective of
this disclosure is to
allow an investor to evaluate the nature of assets held by, and the
operations of, entities
apart from the VIE, as well as the nature and amounts associated with
intercompany
transactions. Any intercompany amounts should be presented on a gross
basis and when
necessary, additional disclosure about such amounts should be included
in order to make
the information presented not misleading.
9. Disclose that trading in your securities may be prohibited under the
Holding Foreign
Companies Accountable Act if the PCAOB determines that it cannot
inspect or investigate
completely your auditor, and that as a result an exchange may
determine to delist your
securities. Disclose whether your auditor is subject to the
determinations announced by
the PCAOB on December 16, 2021.
Item 3.(d) Risk Factors, page 5
10. Given the Chinese government s significant oversight and discretion
over the conduct of
your business, please revise to highlight separately the risk that the
Chinese government
may intervene or influence your operations at any time, which could
result in a material
change in your operations and/or the value of your securities. Also,
given recent
statements by the Chinese government indicating an intent to exert
more oversight and
control over offerings that are conducted overseas and/or foreign
investment in China-
based issuers, acknowledge the risk that any such action could
significantly limit or
completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless.
11. In light of recent events indicating greater oversight by the
Cyberspace Administration of
China (CAC) over data security, particularly for companies seeking to
list on a foreign
exchange, please revise your disclosure to explain how this oversight
impacts your
business and to what extent you believe that you are compliant with
the regulations or
policies that have been issued by the CAC to date.
If the PRC government determines that the agreements that establish the
structure for operating
our business... , page 20
12. You state here that the VIE Contractual Arrangements provide us with
the ability to
"effectively control" your VIEs. You also state elsewhere in your
annual report that, as a
Bangxin Zhang
FirstName LastNameBangxin Zhang
TAL Education Group
Comapany22,
February NameTAL
2022 Education Group
February
Page 5 22, 2022 Page 5
FirstName LastName
result of the VIE Contractual Arrangements, you are the "primary
beneficiary" of the
VIEs. However, neither the investors in the holding company nor the
holding company
itself have an equity ownership in, direct foreign investment in, or
control of, through such
ownership or investment, the VIE. Accordingly, please refrain from
implying that the
contractual agreements are equivalent to equity ownership in the
business of the VIE. Any
references to control or benefits that accrue to you because of the
VIE should be limited to
a clear description of the conditions you have satisfied for
consolidation of the VIE under
U.S. GAAP. Additionally, your disclosure should clarify that you are
the primary
beneficiary of the VIE for accounting purposes. Please also disclose,
if true, that the VIE
agreements have not been tested in a court of law.
13. Revise your risk factors to acknowledge that if the PRC government
determines that the
contractual arrangements constituting part of the VIE structure do not
comply with PRC
regulations, or if these regulations change or are interpreted
differently in the future, the
your securities may decline in value or become worthless if the
determinations, changes,
or interpretations result in your inability to assert contractual
control over the assets of
your PRC subsidiaries or the VIEs that conduct all or substantially
all of your operations.
Our ADSs may be delisted under the Holding Foreign Companies Accountable Act...
, page 39
14. We note your disclosure about the Holding Foreign Companies
Accountable Act. Please
expand your risk factors to disclose that the United States Senate has
passed the
Accelerating Holding Foreign Companies Accountable Act, which, if
enacted, would
decrease the number of non-inspection years from three years to
two years, and thus,
would reduce the time before your securities may be prohibited from
trading or delisted.
Update your disclosure to reflect that the Commission adopted rules to
implement the
HFCAA and that, pursuant to the HFCAA, the PCAOB has issued its report
notifying the
Commission of its determination that it is unable to inspect or
investigate completely
accounting firms headquartered in mainland China or Hong Kong.
CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES, page F-27
15. We note your disaggregated revenues includes other revenue
primarily derived from
one-on-one online tutoring services for children, artificial
intelligence( AI ) interactive
courses provided on the Group s online platforms, and books related
to preschool and K-
12 and a separate line for online education services through
www.xueersi.com. Please
distinguish for us the online revenue reported as others and the
online education
services through www.xueersi.com and explain why you have not
aggregated online
revenues.
Form 6-K filed November 15, 2021
General
Bangxin Zhang
TAL Education Group
February 22, 2022
Page 6
16. We note the issuance of the Opinions on Further Alleviating the Burden
of Homework
and After-School Tutoring for Students in Compulsory Education by the
General Office
of the CPC Central Committee and the General Office of the State
Council (Opinion) and
the subsequent issuance of the Beijing Municipality s Measures to
Further Reduce the
Burden of Homework and After-School Tutoring on Students in Compulsory
Education in
Beijing. We also note your Form 6-K filed November 15, 2021 which
included a press
release which provided a business update based upon regulatory
developments related to
the Opinion and the related implementing rules, regulations and
measures promulgated by
competent government authorities. Additionally, we note your
statements in the press
release that the company plans to cease offering academic subjects to
students from
kindergarten through grade nine in the mainland of China by the end of
December 2021,
the cessation will have a substantial adverse impact on the company
s revenues for the
fiscal year ending February 28, 2022, including subsequent periods,
and that
historically the revenues from offering academic services accounted
for a substantial
majority of the company s total revenues. Please elaborate upon
these statements to
explain the following:
Quantify the portion of your total revenues that will be impacted
by cessation of
offering these academic services.
Quantify any other material financial impacts related to the
cessation of offering
these academic services. In this regard, we note that you operate
a large number of
learning centers and services centers which could be directly or
indirectly impacted.
Lastly, we note that the Opinion contains restrictions related to
registration as non-profit
versus profit, foreign ownership and use of contractual arrangements,
public listing and
capital raising. Please address each of these additional restrictions
and the company's
compliance with these additional restrictions.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Scott Stringer at 202-551-3272 or Joel Parker at
202-551-3651 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Donald Field at 202-551-3680 or Mara Ransom at 202-551-3264 with any
other
questions.
FirstName LastNameBangxin Zhang Sincerely,
Comapany NameTAL Education Group
Division of
Corporation Finance
February 22, 2022 Page 6 Office of Trade
& Services
FirstName LastName